1. Active Management Is Worse Than a Zero-Sum Game

2. Information Ratios Determine Added Value

3. Allocate Risk Budget in Proportion to Information Ratios

4. Alphas Must Control for Skill, Volatility, and Expectations

5. The Fundamental Law of Active Management: Information Ratios Depend on Skill, Diversification, and Efficiency

6. Data Mining Is Easy

7. Constraints and Costs Have a Surprisingly Large Impact

The information ratio is a measure of a manager’s opportunities. If we assume that the manager exploits those opportunities in a way that is mean/variance-efficient, then the value added by the manager will be proportional to the information ratio squared.

Bias-Variance Tradeoff

My study notes for the book written by Marcos Lopez de Prado, Advances in Financial Machine Learning. This post is just for personal study purpose, not for any commercial uses. If you are interested in the contents please purchase the book.

This post collects backtest statistics and investment metrics I have learned over the years which I used to evaluate investment strategies. A link to this Jupyter Notebook shows the implementations with Python with NumPy and Pandas.

This article is jointly written with my mentor Mr. Ted Theodore, and is also published in the Financial Advisor Magazine.

This post summarizes my understanding of the principal investment strategy on building a core equity position for long-term capital appreciation. In the future, I will write more details about the systematic implementations and document relevant research.