Risk Management
At SMA Capital, we utilize a NON-ORTHOGONAL factor model to create the Factor RX suite of factors – which map risks that BARRA or Axioma might not capture.
The non-orthogonal approach allows us to develop sector specific factors pertinent to sector focused equity long/short strategies – HF positioning, crowding, multi-time period momentum or beta or correlations, retail activity etc.
WHAT MAKES FACTOR RX UNIQUE
Factor RX uses “dirty factors” where we intentionally use a non-orthogonal lens. The factors are seen as stand-alone “risks” within each market sector - ignoring the correlations other factors in the market.
While they are not mathematically “pure” - they reflect the actual complexity and nuance of the market and risks specific to equity long/short strategies and provide greater granularity than standard quantitative market factors.
WEEKLY FACTOR CHARTS (see Factor Analytics)
Each week, we highlight the biggest factor movers in each sector which we map for absolute return and z-score against 2-year trend.
We focus on delivering insight about drivers of return and overbought or oversold risks which portfolio managers can monetize.
PORTFOLIO RISK DASHBOARD (see Portfolio Analytics)
Factor Rx risk dashboard enables a portfolio manager to review their portfolio through the Factor RX lens.
This means a PM can track their portfolio exposures relative to the Factor Rx factor analysis and take action if portfolio exposures lead to unintended risks or missed opportunities relative to the recent factor performance.