macrocephalopod on Twitter: "Shannon's original example used 50% vol for each period -- if we assume that a period is one day, the asset in his example would be 8x more volatile than Bitcoin (!)… https://t.co/tyiSUkBr9S"

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Adam Goldstein‏ @goldstein_aa 16 Mar 2021

Replying to @macrocephalopod @zzzrrrzzz12 @breakingthemark

Adam Goldstein Retweeted Adam Goldstein

I guess you missed this tweet?https://twitter.com/goldstein_aa/status/1371143515577663492 …

Adam Goldstein added,

Adam Goldstein @goldstein_aa

Replying to @zzzrrrzzz12 @macrocephalopod @breakingthemark

Ok, just for the record the way I defined "pure randomness" was incorrect because R has a zero arithmetic mean. If (1+R) is pure noise with a *geometric* mean of 1, which means the stock goes nowhere long term, you can get very rich off it.

1 reply 0 retweets 0 likes

macrocephalopod‏ @macrocephalopod 16 Mar 2021

Replying to @goldstein_aa @zzzrrrzzz12 @breakingthemark

macrocephalopod Retweeted macrocephalopod

Nopehttps://twitter.com/macrocephalopod/status/1371880688035762179?s=20 …

macrocephalopod added,

macrocephalopod @macrocephalopod

Replying to @macrocephalopod @zzzrrrzzz12 and 2 others

This other guy already realized it wouldn't work and retracted his claim, sadly you were not smart enough to do the same, womp womp https://twitter.com/goldstein_aa/status/1371143515577663492?s=20 …

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Adam Goldstein‏ @goldstein_aa 16 Mar 2021

Replying to @macrocephalopod @zzzrrrzzz12 @breakingthemark

Hmmm... you still haven't explained how a stock that's generated with RANDOM noise with a geometric mean multiplier of 1 - so, a stock that goes absolutely nowhere because there's no mean reversion or trend - can make you incredibly rich. I guess we're all insane morons!

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macrocephalopod‏ @macrocephalopod 16 Mar 2021

Replying to @goldstein_aa @zzzrrrzzz12 @breakingthemark

That's not what we were talking about? I only ever mentioned arithmetic mean zero. You challenged that, then later realized you were wrong and retracted - fine. Some other guy continued to push his wrong idea, so I simulated it to show it was wrong.

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Adam Goldstein‏ @goldstein_aa 16 Mar 2021

Replying to @macrocephalopod @zzzrrrzzz12 @breakingthemark

Well, look at your tweet thread: "Here's a quick primer on how to build a quant reversion strategy. First step is to find a price series that...may have some reverting behaviour -- this ... looks reasonable but you could use an ETF, currency, whatever really."...

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Adam Goldstein‏ @goldstein_aa 16 Mar 2021

Replying to @goldstein_aa @macrocephalopod and

Your tweet clearly implied that in order to make money there has to be some predictable behavior like mean reversion (or trend, presumably). But that's not true - a stock that wanders aimlessly with NOISE with a geomean multiplier of 1, so it goes nowhere - could make you rich.

1 reply 0 retweets 1 like

macrocephalopod‏ @macrocephalopod 16 Mar 2021

Replying to @goldstein_aa @zzzrrrzzz12 @breakingthemark

I agree with that!* I have never disagreed with it! I didn't bring up shannon's demon -- I only pointed out that it doesn't work on price series that have zero arithmetic return (which is true of the price series I was using).

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macrocephalopod‏ @macrocephalopod 16 Mar 2021

Replying to @macrocephalopod @goldstein_aa and

The * is there because this only works in theory (in reality transaction and financing costs would eat all your pnl) and only for certain definitions of "very rich" -- in practice you would need to compound for dozens of years to become rich, even if you had no txn costs.

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Adam Goldstein‏ @goldstein_aa 16 Mar 2021

Replying to @macrocephalopod @zzzrrrzzz12 @breakingthemark

Well, you're clearly making some assumptions on the (1+R) noise multiplier with geomean=1. If it's highly volatile noise, you could get rich as as fast as Rentech did with Medallion. And it's just random noise!

1 reply 0 retweets 1 like

macrocephalopod‏ @macrocephalopod 16 Mar 2021

Replying to @goldstein_aa @zzzrrrzzz12 @breakingthemark

Yes I'm assuming it's similar to real-world stocks. If you took Bitcoin with 100% annualized vol you would only have a Sharpe of 0.5 so you need to compound for 16 years to be 95% sure of profit. For a stock with 50% vol you need to compound for 64 years to be 95% sure.

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macrocephalopod‏ @macrocephalopod 16 Mar 2021

Replying to @macrocephalopod @goldstein_aa and

Shannon's original example used 50% vol for each period -- if we assume that a period is one day, the asset in his example would be 8x more volatile than Bitcoin (!)

11:22 AM - 16 Mar 2021

2 replies 0 retweets 0 likes

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