With some additional robustness checks and careful implementation of a simulator for fill prices, commissions etc you are well on your way to launching your first quant strategy.
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Haha dont worry, just view it as another concept like anything else. So what do you think about trying to identify assets with positive arithmetic rets and negative geom rets, and then running a simple strat that takes advantage. Not worth it?
Completely not worth it because you can never be sufficiently sure about the arithmetic and geometric returns you have identified (your confidence intervals will be huge) plus these things will be highly time varying anyway.
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And, I would hope this is obvious enough that it doesn’t need saying, but real world assets do not actually follow known distributions with a priori identifiable parameters.
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My PnL knows this all too well :'(
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Ah ok that makes sense. Glad I asked, it's demystified for me now.
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You can take advantage of “volatility pumping” by rebalancing your buy and hold portfolio every now and again, this is a smart and good idea that most people would just call “diversification”.
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