Qontigo adds US trading model to Axioma line of global equity factor risk models

Qontigo, a leading provider of innovative risk, analytics, and index solutions, has introduced a trading horizon view (“Trading Model“) for the Axioma US Equity Factor Risk Model, currently available in a short-horizon, medium-horizon, statistical and fundamental variants. The new Trading Model is specifically designed for the needs of equity traders and risk managers within hedge funds, asset management, and investment banks who need accurate portfolio risk exposures and forecasts to stay ahead of volatile market environments.

The new model brings an additional five style factors to its existing coverage of 14 style and 15 statistical factors: Hedge Fund Crowding, Earnings Variability, Downside Risk (volatility), Short Interest and One Day Reversal. The fundamental model also incorporates an implied volatility adjustment that more accurately captures market uncertainty around events such as earnings announcements.

“The new factors incorporate common trading strategy metrics to better align risk forecasts with shorter investment horizon goals,” said Chris Sturhahn, Chief Product Officer for Analytics. “We’ve deliberately designed this model to be parsimonious, using the minimum number of parameters without compromising on the explanatory power.”

In comparison to the short-horizon model, which is intended for investment horizons of two to three months, the Trading Model is designed for horizons up to one month.

Users benefit from the reduced horizon by being able to:

• Capture the day-to-day changes in risk of the trading book in periods of high volatility.
• Manage the risk of high turnover strategies.
• Implement smarter, more efficient, short-term hedging strategies.
• Understand the trade-off between risk (tracking error to benchmark) and market impact (slippage).
• Capture the event-driven risk stemming from earnings announcements, short-squeezes and other infrequent events.

“We expect continued volatility into 2022 and our new model can help users take advantage of the opportunities and better understand the risk-return tradeoffs created by that volatility,” said Melissa Brown, Global Head of Applied Research. “However, the new model is not just for short-horizon investors and traders. Our research clearly shows that compared with a longer-horizon version, the Trading Model has a much more nimble response to crises-induced volatility while at the same time producing similar results under ‘normal’ conditions. This type of insight can aid investment decisions for all managers.”

In line with the shorter investment horizon, the Trading Model redefines the Market Sensitivity, Liquidity, Volatility, Exchange-rate Sensitivity and Growth factors to focus more on the most recent market movements. All Axioma US Equity Factor Risk Model versions cover more than 10,000 companies, including those non-US traded assets headquartered in the US and style factors exposures and returns are updated on a daily basis.

The new Trading Model can be accessed through the Axioma line of portfolio construction, performance analytics and risk management solutions or through file delivery which can be integrated into third-party risk, execution and order management systems.