Participant Dashboard
Group Astra
Build a Market Neutral Trading Strategy: From Theory to Backtested Model
Client Scenario: A Singapore based Family Office client managed around $150m of investment assets. Around 30% is allocated to active trading strategies across asset classes. CIO is interested in evaluating a Market Neutral Trading framework, primarily around equity asset class.
Project Objective: Design, backtest, and present a market neutral trading strategy that generates alpha while minimizing market risk exposure. Teams will analyze historical data, identify trading signals, implement hedging mechanisms, evaluate performance metrics and build a functional model.
Domains Covered: Finance (primary) + Consulting (secondary)
Weekly Plan
Suggested weekly progress plan
Suggested Progress Plan
- Week 1: Learning + Allocation planning + Data sources
- Market-Neutral concept understanding
- Strategy types identified (e.g. pairs trading, statistical arbitrage)
- Data infrastructure setup, access to price data sources (Yahoo Finance/Bloomberg)
- Universe selection: Defined tradable universe (e.g., S&P 500, sector-specific stocks)
- Week 2: Signal development strategies
- Identify and validate pairs/baskets of securities for market neutral trading
- Develop at least 2-3 distinct trading signals with clear entry/exit rules
- Establish risk parameters and position sizing methodology
Create initial signal testing framework (foundation for Week 3 backtesting)
- Week 3: Backtesting + Analysis
- Functional backtesting engine (usable model) with proper data handling and execution logic
- Complete multi-year backtest with transaction costs modeled
- Performance metrics calculated
- Stress testing completed, performance across different market regimes
- Strategy refined based on backtest insights (without overfitting)
- Draft report with visualizations
- Week 4: Documentation + Presentation
Further suggestions will be added on a weekly basis
Resources
Suggested reference material
Reference Resource List
- https://www.fidelity.com/learning-center/trading-investing/trading/pairs-trading
- To be provided on an ongoing basis