Capricorn FX Core Strategy

The Capricorn FX Core Strategy is a portfolio of CTA investment approaches that aim to create alpha through their unique skills-based idea generation process. This methodology of sourcing and implementing a range of differentiated trading styles offers investors a strategy seeking enhanced returns that is diversified and uncorrelated to other traditional and alternative products.

The product seeks to achieve superior returns by efficiently shifting assets between trading styles that perform stronger in certain market conditions. The multi-strategy methodology is engineered to contribute positively towards portfolio diversification without significantly lowering return expectations.


The Investment Process

To achieve its primary goals of producing enhanced risk-adjusted returns, the methodology behind the Capricorn FX Core strategy initially screens for currency only CTAs that displays an edge in delivering alpha by trading style and/or trader skill.

Trading Methodology:

  1. CTA strategies are sourced by trading style and skills
  2. Data is analysed by returns and investment objective
  3. Due diligence process verifies tracks and documentation
  4. Initial testing in live-trading environment is monitored
  5. Active strategies are monitored in the portfolio

The investment process determines that all selected trading styles and strategies are analysed both quatitatively and qualitatively to firstly measure an ability in generating alpha across various market conditions. Secondly, these strategies must exhibit return profiles that are uncorrelated by using clearly defined risk controls that observe; exposure, drawdown, leverage and position limits. This portfolio of strategies is engineered to create a diversified product that is scalable with the possibility of tailoring the risk/reward profile to specific needs. A resolution plan is in place and monitored by the investment team to safeguard against a breach of pre-determined internal contraints.

FX Core CTA Strategy Allocation

Each trading signal that is generated from the underlying strategy is then mirrored to the Capricorn FX Core portfolio, and are executed under client instructions. All signals are monitored by the investment team should the target or stoploss of the strategy be revised due to a shift in its risk/rewards profile. Clients and their brokerage execution relationships are immediately notified of these modification to adjust the portfolio accordingly.


The Multi-Strategy Approach

Empirical evidence from research into CTA investing has concluded that utilising a multi-strategy investment approach improves the return profile of traditional portfolios through strategy diversification. Allocating to a selection of CTA strategies that exhibit uncorrelated returns to the broader market improves performance opportunities, whilst simultaneously diversifying risk across a range of trading strategies.

  1. Technical Strategies:
    Currency managers that adopt technical strategies in generating returns typically analyse price movement to identify an underlying trend or pattern in one or more currency crosses. From this analysis the manager seeks to forecast short to medium term views based on the assessment that historical patterns often repeat themselves.
     
  2. Fundamental Strategies:
    Trading the currency markets with a fundamental approach engages a macro economic assessment of a currency’s strength or weakness, to predict its direction against another currency. This analysis seeks to determine the true value of a country’s currency by evaluating news reports, economic data and events amongst other factors.
     
  3. Behavioural Strategies:
    When empirical studies first documented the presence of price anomalies that contradicted the ‘efficient market’ theory with the hypothesis of the ‘irrational investor’, behavioural strategies emerged. In this case the decision-making process follows a path that maps the emotional cycle of the impulsive investor.
     
  4. Discretionary Strategies:
    A key contributor in producing uncorrelated returns is having a trade generation idea process built on manager skill, in interpreting technical signals and understanding the market psychology. Discretionary trading strategies extend this approach to evaluating how to reduce or control the unwanted levels of risk.

Capricorn FX Core Multi-Strategy Approach


Monitoring and Evaluation

Scenarios Leading to Strategy Adjustments:

  1. Technical indications of a lowering strategy risk/reward ratio
  2. Shifting market sentiment potentially displacing trading views
  3. Increasing fundamental risks through macro changing factors
  4. Observation of liquidity spikes or restrictions from providers
  5. Intuition of the investment team to re-allocate program assets

The FX Core Strategy governs the stringent and robust risk management policy that each of the underlying trading styles to adhere to within the investment process, in order to generate alpha seeking returns. Therefore, portfolio adjustments occur when strategy targets are achieved or if a breakdown in the investment case is observed.

For further information on the investment process of the Capricorn FX Core strategy, please contact us at info@ctastrats.com to request the full product presentation.

 

Capricorn FX Core Strategy

Updated on 2017-02-22T12:15:16+00:00, by admin.