SQRT 20230802

This letter is exclusively for our StraBerry users. We kindly request that you do not circulate it.

Welcome back 🌴

Welcome back to the StraBerry investment letter series.

As we enter the season of scorching sun rays and pool-side lazy (or boozy) afternoons, we hope you're reading this from somewhere cool and breezy. We’re sharing some real cool stuff below about the upgraded version of Yi Sun-Sin, code-named “hansan_v4,” so, as per usual, please read on!.

Performance Review: Yi Sun-Sin

Trading period: 2023-05-19~2023-07-31 (74 days)

Average trade count (daily): ~1800 times

Average size of trading universe (daily): 20~25 cryptocurrencies

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Pretty un-eventful, just moving sideways

Between July 11 and July 31, the performance of Yi Sun-Sin has remained relatively stagnant, moving sideways with no significant profit or loss, marking -0.2%.

Surge of Ripple (XRP): On July 13, 2023, Judge Analisa Torres of a US court issued a decision on motions for summary judgment, affirming that the XRP token, as a digital token, does not meet the criteria of an “investment contract” as defined by the Howey requirements, and thus cannot be considered a security. According to the Howey Test, an asset is considered a security if it’s an "investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others."

Judge Torres acknowledged that while the sale of XRP could potentially be seen as the sale of a security in certain cases, such as institutional sales of XRP tokens, programmatic sales and other XRP token sales conducted by Ripple Labs were deemed not to qualify as the sale of investment contracts. This ruling served as a "good-to-go" sign for investors, leading to a price surge of more than 70% for XRP overnight.

How has this decision and the subsequent price surge of XRP impacted our Yi Sun-Sin portfolio? Well, for Yi Sun-Sin, the impact of individual asset performance on the overall portfolio is generally mitigated, as it’s a well-diversified strategy. As such, it did not experience a significant change in its daily total profit, marking +1.8% on July 14. This principle of diversification plays a crucial role, especially in scenarios involving a significant loss on a specific asset. Imagine what it’d be like if Yi Sun-Sin lacked diversification and experienced a 70% drop (instead of a 70% surge) in the value of a single coin/token overnight. :o The inclusion of diversification mitigates the impact of such extreme events, reducing the overall risk and ensuring a more stable and resilient portfolio.

Hansan_v4: While the original Yi Sun-Sin portfolio may have been uneventful, our research reveals that the newer version of Yi Sun-Sin (hansan_v4), tested since the initiation of Project StraBerry, has shown pretty significant returns during the same period from July 11 to July 31. More below.

Research: Code name “hansan_v4”

A quant strategy is essentially a statistical model that assesses price movements within the market. What that means is that any given strategy, by definition, remains open-ended with ample room for continuous improvement. Yi Sun-Sin is no exception. To that end, our team has continuously been working on research to enhance the original Yi Sun-Sin strategy, and we’re happy to share today some updates: Hansan_v4.

As part of our comparative experiments, we deployed a newer version of Yi Sun-Sin, code-named "hansan_v4," on the same day we launched StraBerry in May 2023. Since then, a tiny portion of SQRT's prop trading has been running on this updated version.

For hansan_v4, we’ve incorporated additional risk management logics:

Improved timing for buying/selling cryptocurrencies.

Enhanced stability in calculating the historical performance of each cryptocurrency.

Exclusion of cryptocurrencies exhibiting excessive volatility around the trading day or significant price differences when compared to other major exchanges such as Binance.

Here’s the outcome of Hansan_v4’s real trading since its inception in May 2023:

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As you can see in the chart above, hansan_v4 has shown improvement in the following aspects:

Return: This can be somewhat subjective, however, as if we consider the measurement up to early July, hansan_v4 had performed worse than the original version.

Maximum Drawdown (MDD): Hansan_v4 has exhibited a nearly 2% reduction in MDD, indicating better risk management.

Higher Sharpe ratio (SR): This aspect has significantly improved. While the return scale between both versions is not significantly different, the higher SR of hansan_v4 mainly results from its lower volatility (standard deviation of time series return), which also signifies improved risk management.

Obviously, upgraded logics do not always guarantee better results. Even in the case of hansan_v4, it definitely missed the substantial return around late June when StraBerry experienced an increase of +500 basis points (1bp=0.01%). That said, it’s worth noting that hansan_v4 shows a much higher SR than StraBerry, which indicates lower volatility while maintaining a similar return scale. The higher SR signifies an improved risk-adjusted performance, which is a crucial aspect for investors seeking a balanced approach between returns and risk.

Making upgrades to the existing strategy does not automatically lead to a better performance. For instance, the logic in the original strategy (alpha) could already be sufficient to generate robust profits, and as a result, any additional modification could potentially lead to an overfitted outcome. However, when the upgraded logic is reasonable—if it demonstrates a reasonable live paper trading outcome—it's worth considering incorporating the additional operations into the original strategy.

See below the return comparison of StraBerry and hansan_v4 (7/11 ~ 7/31).

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Considering the improved risk-adjusted performance of hansan_v4, we have decided to replace the original Yi Sun-Sin with it in the coming days. As a Straberry user, you'll receive further notice from us when this transition takes place. In the meantime, rest assured that you do not need to take any action regarding the upgrade, as the logics will be seamlessly shifted on the back-end of our system.

Your continued support and trust are greatly appreciated, and we are dedicated to providing you with the best possible trading experience.

Have a fantastic August,

Your friends at SQRT

Welcome back 🌴

Performance Review: Yi Sun-Sin

Pretty un-eventful, just moving sideways

Research: Code name “hansan_v4”

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