1. Signal Engine: RACS Formula
A composite score synthesising institutional consensus, activist conviction, crowding risk, and macro sensitivity.
2. Unsupervised Learning: Manager DNA
Segmentation of 8,934 institutional managers into behavioural archetypes using dimensionality reduction and density clustering.
Each manager is mapped to a 14-dimensional behavioural vector per quarter. No fundamental or price data is used; only trading behaviour.
Managers exist in a high-dimensional space defined by 14 behavioural features (turnover, concentration, etc).
3. Macro Intelligence: Gaussian HMM
A 4-state Hidden Markov Model trained on macroeconomic indicators (VIX, yield curve, credit spreads, Fed funds, OFR stress).
The matrix shows the learned probability of transitioning from one state to another. Note the high persistence (diagonal) typical of macroeconomic regimes.
4. Statistical Robustness
Based on Bailey et al. (2016). A signal must pass all gates simultaneously to be deployed.
Penalises the observed Sharpe for the number of configs tested (multiple testing bias), skewness, excess kurtosis, and serial autocorrelation. DSR > 1.0 required.
Splits data into 16 partitions (12,870 combinations). Calculates fraction of splits where the in-sample optimal strategy underperforms out-of-sample. PBO < 40% required.
If observed Sharpe falls in the top 5% of the null distribution (p < 0.05), the signal's performance is not attributable to lucky draws of positive return days.
Shuffles regime labels while keeping returns fixed. Tests whether the regime-conditioning multiplier adds genuine alpha or is merely a post-hoc rationalisation.
Expanding-window out-of-sample evaluation across 10 folds (2010–2024). No look-ahead bias: the regime model is retrained entirely from scratch in every fold. Transaction costs (5-12 bps) and a realistic 45-day filing lag are strictly enforced.
OLS regression of RACS portfolio returns against the Fama-French 5-Factor + Momentum model. A statistically significant alpha (t-stat > 2.0) confirms the strategy captures idiosyncratic edge rather than disguised beta.
Academic Foundation
Peer-reviewed papers underpinning the pipeline.