ETF Alpha Hedge

Our proprietary "moving alpha" distills the non-market-driven component of ETF returns. Alpha is shown to have near-term persistence.  Positive-alpha ETFs tend to continue with modest but profitable relative strength; negative-alpha ETFs tend to continue with modest but profitable relative weakness.  When the positive and negative alphas are hedged against each other, the result is a low variance upward path with almost no market correlation.

Here is a chart showing cumulative monthly gross alpha-hedged performance rotating among iShares and ProShares "style box" ETFs (large, mid-cap, small; growth and value).  Note there is essentially no relation to market trend.  The iShares hedge has an average annual rate of 7.76% with half the volatility and no correlation to the S&P.  The ProShares leveraged hedge (starting in 2007) has an average rate of about 14%. 

ETF Alpha Hedge

Click here for a summary analysis of how this remarkable alpha hedge works (2 pages pdf).

Carpenter Analytix moving alpha has application in a range of ETFs, mutual funds and sector analysis.

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