Top Quantitative Investment Strategies to Try in 2023

Picture: Austin Distel 

Making sound investments can sometimes involve guesswork, especially during periods of volatility. You must trust that you have enough experience with a particular type of investment to know it can prove lucrative. 

However, quantitative investing, also known as systematic investing, can sometimes be a safer approach. This form of investing involves adopting a particular investment strategy based on historical data within software and computer models. When you calculate probabilities, you might stand a chance of making more profitable investments at the right times. If you’re ready to make well-informed investments this year, the following quantitative investment strategies might be worth exploring. 

Smart Beta

If you wish to balance risk and performance, smart beta is one of the many quantitative investment strategies worth exploring. Smart beta prioritizes risk reduction, enhanced returns, and diversification through investment in exchange-traded funds or customized indexes using one or multiple factors. 

Many people exploring smart beta look at many asset classes like multi-asset, fixed income, equities, and commodities. While investors still follow indices, they also consider volatility, value, size, liquidity, and other alternative weighting schemes to make their investment choices. 

Risk Parity

Risk parity describes portfolio allocation focused on risk to determine portfolio allocation. It involves investing through leverage and is a modification of the modern portfolio theory (MPT). Risk parity aims to help investors allocate their investment capital based on risk weighting and view their portfolio’s risks and returns as one. While it’s built from MPT, investors can use leverage and short selling with this quantitative investment strategy. 

Many investors relying on risk parity will invest in stocks and bonds. However, they don’t use a predetermined asset diversification ratio like 60/40. Instead, they determine the proportions through targeted risk and return levels. 

AI Data Strategies

Artificial intelligence (AI) has enhanced and improved many parts of our lives, and investing is no different. Many investors now use AI and big data strategies to make sound investing decisions using alternative data. According to studies, the stock market will be more successful with the steady development of machine learning. 

Quantitative Value

Investment strategies can be complex, but the quantitative value strategy could easily be considered one of the most straightforward for new investors. This strategy involves focusing on the value of stocks using a company’s important information like their income statement and balance sheet. 

With this strategy, investors can see which businesses are currently undervalued with room to increase in value over time. Quantitative value can also be an excellent way to eliminate the more high-risk stocks. How successful you are with this strategy can depend on how you can identify the underpriced stocks and play the long game to capitalize on their future success. 

Multi-Asset Strategies

Some investors focus on one asset type, but others take a multi-asset approach. This strategy involves investing in a wide spectrum of assets, like cash, bonds, real estate, and stocks, to create a diversified portfolio. This quantitative investment strategy can be desirable for long-term capital appreciation with reduced volatility, cash flow in a risk-aware fashion, and consistent returns across market cycles. 

Managing risks while increasing returns can be a balancing act, and many investors are unsure what their next moves should be. When you analyze historical data with a quantitative investment strategy, such as those above, you might improve your chances of making profitable investment transactions.