Matching Market Views and Strategies: A New Risk Framework for Optimal Selection

Strategies are often analyzed without confronting quantitatively the clients’ views. They also may present an overfitting problem which is detrimental to the investor and the client. In this paper, we present a new quantitative framework that enables the clients and investors alike to test their views on the strategies they invest on. It is a new framework that allows a good match between market views and strategies properties. It also allows classification and optimal allocation between a set of strategies. We go from the current paradigm which is buying the past to matching the future view.