Book Image

Algorithmic Short Selling with Python

By : Laurent Bernut
Book Image

Algorithmic Short Selling with Python

By: Laurent Bernut

Overview of this book

If you are in the long/short business, learning how to sell short is not a choice. Short selling is the key to raising assets under management. This book will help you demystify and hone the short selling craft, providing Python source code to construct a robust long/short portfolio. It discusses fundamental and advanced trading concepts from the perspective of a veteran short seller. This book will take you on a journey from an idea (“buy bullish stocks, sell bearish ones”) to becoming part of the elite club of long/short hedge fund algorithmic traders. You’ll explore key concepts such as trading psychology, trading edge, regime definition, signal processing, position sizing, risk management, and asset allocation, one obstacle at a time. Along the way, you’ll will discover simple methods to consistently generate investment ideas, and consider variables that impact returns, volatility, and overall attractiveness of returns. By the end of this book, you’ll not only become familiar with some of the most sophisticated concepts in capital markets, but also have Python source code to construct a long/short product that investors are bound to find attractive.
Table of Contents (17 chapters)
14
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Index

Building a combined risk metric

The next three metrics are arguably closer approximations of risk and are more intuitive.

The Grit Index

"When I left the dining room after sitting next to Gladstone, I thought he was the cleverest man in England. But when I sat next to Disraeli, I left feeling that I was the cleverest woman."

– Jennie Jerome, mother of Winston Churchill

Investors often seem to act counterintuitively to their interests. They say they want returns, but they react to drawdowns. More specifically, they react to drawdowns in three ways:

  • Magnitude: never test the stomach of your investors
  • Frequency: never test the nerves of your investors
  • Period of recovery: never test the patience of your investors

The Grit Index is arguably the most underrated metric in the entire finance multiverse. Less than a handful of metrics capture robustness so elegantly. Broadly speaking, it looks at downside risk by...