Riding the wind of rebirth

This time the resources were more fully utilized and the model was already quite mature, so the traversal only took more than 20 hours.

This time the results were in line with expectations, and the hit rate had increased to 98 percent.

This probability certainly does not mean that the system still has a 2% error rate, but it means that there are 2% of trading opportunities that have to be abandoned because the system cannot make accurate judgments.

Considering the countless opportunities that appear in the global market in a day, there is no need to regret giving up this opportunity.

"Do you want to go online?" After getting this result, Li Laosan was already a little restless.

"So far, we have only verified the algorithm mechanism, and have not verified the transaction trigger mechanism." Zhou Zhi said: "So, first set the transaction rate to 200 transactions per second, no more than 2,000 transactions per day, and select one or two stocks to experiment with."

"Isn't this... too conservative?" Li Laosan frowned and asked provocatively: "Don't you have confidence in Xiao Miao?"

"What Elbow said makes sense." Mai Xiaomiao was a die-hard fan of Zhou Zhi, and it was useless for Li Laosan to instigate her: "It's better to be cautious."

"There are also stock market choices and stock choices." Zhou Zhi said: "Although it is a global bull market now, we must also choose stocks with the best growth value and large trading volume to operate. Even if we make mistakes, the transactions can be covered up in a large number of normal transactions and will not be analyzed. The overall rise in stocks can also reduce the losses caused by our mistakes."

"If that's the case, why not try hedging?" Li Laosan rolled his eyes.

Hedging refers to a special method of conducting two transactions simultaneously with related market conditions, opposite directions, equal quantities, and offsetting profits and losses, in order to ensure that investment returns can be obtained while reducing business risks.

The so-called market correlation means that there is a unity in the market supply and demand relationship that affects the price trends of the two products. If the supply and demand relationship changes, it will affect the prices of both commodities at the same time, and the directions of price changes are generally consistent.

For example, stocks and stock index futures of these stocks.

Opposite direction means that the buying and selling directions of the two transactions are opposite, so no matter which direction the price changes, there is always one profit and one loss.

For example, buying stocks and selling stock index futures at the same time, and buying stock index futures and selling stocks at the same time.

Of course, in order to offset profits and losses, the size of the two transactions must be determined according to the magnitude of their respective price changes, so that the quantities are roughly equivalent.

Many people will feel confused. Since transactions exist at the same time, if one side makes a profit, the other side must lose money. So isn’t it just paying transaction fees and making no money?

In fact, this is not the case. There are so many ways to make money here.

The simplest and easiest to understand hedging method to make money is called "hedged settlement".

The so-called hedge settlement means that after traders open a position in the futures market, most of the time they do not end the transaction through delivery, but through hedging settlement.

For example, after buying a futures contract to open a position, the same stock index futures contract can be sold to relieve the performance obligation; after selling a futures contract to open a position, the same futures contract can also be bought to relieve the performance obligation. Hedging settlement allows investors to end futures trading without waiting for delivery, thereby improving the liquidity of the futures market.

Foreign exchange hedging is also a good example. In the early 90s, the Iraq War ended and the United States became the victor. The price of the US dollar also rose steadily and strongly against all foreign currencies. Only the Japanese yen remained a strong currency.

At that time, the Berlin Wall had just fallen, and Germany was dragged down and had hidden economic concerns. The Soviet Union was politically unstable, the UK was also experiencing a pound crisis, and the Swiss franc's appeal as a war refuge after the war also greatly decreased, all of which became weak currencies.

If you buy foreign exchange at this time, you only need to long sell British pounds, marks, and Swiss francs, and short buy Japanese yen at the same time, and you will make a lot of money.

Because when the US dollar appreciates, all foreign currencies will fall, but the degree of decline is different. Others will fall sharply, and only the Japanese yen will fall the least. In this case, by borrowing other foreign currency futures and selling them into Japanese yen, and then reverse the operation and return them afterwards, you can earn a lot of price difference income.

When the US dollar weakens and other currencies appreciate less, the Japanese yen will appreciate sharply. You can still borrow other foreign currency futures and sell them to exchange them for Japanese yen. At this time, you can obtain huge profits from the appreciation of the Japanese yen. After offsetting the losses from the appreciation of other foreign currency futures, you can still earn a lot of price difference profits.

In any case, as long as the hedge is done in this way in the current market, it will be profitable.

This method can avoid the risks brought by short-term extreme fluctuations and protect long-term interests. Of course, if you misjudge the long-term trend, this method will not save you.

The above is only the original meaning of hedging. Hedge funds have developed to the present, and can use various trading methods to hedge, swap, arbitrage, and hedge to earn huge profits. These concepts have gone beyond the traditional scope of risk prevention and profit protection operations. What Li Laosan is referring to is obviously the latter.

"This is a brilliant idea!" Zhou Zhi gave Li Laosan a thumbs up: "Statistical hedging is particularly suitable for our program!"

"Hey! I was just kidding!" Li Laosan said quickly: "The statistical hedging and arbitrage returns are so small..."

"It's good that it's small! At least it's a form of arbitrage, and the single profit is not high, which makes it particularly suitable for us!" The more Zhou Zhi thought about it, the more suitable he felt.

Statistical hedging is a form of risk arbitrage. Its design idea is to first find a number of pairs of stocks or futures with the best correlation, and then find the long-term equilibrium relationship of each pair of investment products. When the price difference of a pair of products, generally referring to the residual of the cointegration equation, deviates to a certain extent, you can start to build a position - buy relatively undervalued products and short sell relatively overvalued products - and when the price difference returns to equilibrium, you can immediately take profits.

Because this equilibrium relationship exists in a long-term and stable manner, and temporary deviations will always return to equilibrium, so as long as you grasp this relationship and conduct transactions, you will always gain profits.

However, if you want to complete such a transaction in the short term, the profit is destined not to be high, and you always need to hold the position, and the risk will accumulate into position risk.

However, as the fund has developed to the stage of AXA, it must always hold positions. For example, Laojiao shares cannot be sold all, because this also involves the issue of supporting Xiao Liujie as the independent director on-site, etc. Therefore, for many products owned by the fund, the holding risk is already there. For these stocks, it is only necessary to consider the hedging income.

After Zhou Zhi's explanation, Li Laosan was relieved. Now he had to find a few stocks to verify the correctness of this system. Therefore, playing statistical hedging on a few stocks in which the fund holds a large number of shares would be a completely sure win and would not attract too much attention.

"Then let's do as you say!" Li Laosan finally agreed to Zhou Zhi's plan. After a discussion, they decided to try using Microsoft, IBM and Oracle stocks. (End of this chapter)