can someone smarter than me explain how the big pod shop model (Millennium, Citadel etc.) generally works pretty well? The whole idea of yanking the portfolio after some non-outlier drawdown in a relatively short period of time shouldn't really add any value imo
My understanding is that allocators like them because they're market neutral and often sector neutral as well, which means low equity mkt correlation, and when you layer that with vol-target risk mgmt the idea is that you get some idiosyncratic alpha that won't suddenly grenade
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if i was more cynical i'd argue that a very tight DD limit encourages trades with strongly negative skew
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Sure - in which case cutting pods that lose money cuts off the left tail of the -ve skew
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