Statistical Arbitrage

How to diversify to generate Alpha

Table of Contents
Page
I. Executive summary 3
II. Investment Strategies 4
III. Advantages of our system 5
IV. Performance 2013 6
V. Performance since inception 7
VI. How our trading system works 8
VII. BNP: Beta Neutral Portfolio 10
VIII. GYC: Introducing Global Yield Curves 11
IX. GYC: Yield Curve Strategies 12
X. GYC: Pairs trading long term rates 13
XI. GYC: Risk Management 14
XII. GYC: Performance 15
XIII. Why diversification? 16
XIV. Alpha generator 17
XV. Portfolio Revisions 18
XVI. Questions and answers 19
XVII.Investor Contacts 20
XVIII.Disclaimer 21

2
Executive Summary

3
Investment Strategies
It has been proven that long only and static asset allocation methodologies are incapable of enduring the peak-to-through decline
of the markets.

4
Advantages of our system

5
Performance - 2013

20.0% S & P 500 T otal R eturn Key statistics

Hang S eng
TR Z
J P M As ian B ond Index
15.0% Return (Jan’ 13 – Apr’13) 18.28%
Return (Annualised) 55.91%
Std Dev (Annualised) 17.01%
10.0%
Sharpe Ratio 3.29
Sortino Ratio 8.39
5.0% Alpha (Annualised) 57.27%
Beta (vs S&P500) -4.49%

0.0% Max Drawdown -1.71%

VaR (Montecarlo @ 99.9%) -5.50%

-5.0% Correlations
TRZ vs S&P500 -10.60%
TRZ vs Hang Seng 7.60%
-10.0%
TRZ vs JPM Asian Bond Index -2.95%

6
Performance – Since inception

35.0%
S & P 500 T otal R eturn
Hang S eng
Key statistics
TR Z
30.0%
J P M As ian B ond Index

Return (Inception – Apr’13) 35.13%

25.0%
Return (Annualised) 52.13%
Std Dev (Annualised) 15.67%
20.0%
Sharpe Ratio 3.33
Sortino Ratio 4.52
15.0%
Alpha (Annualised) 54.36%
Beta (vs S&P500) -10.06%
10.0%

Max Drawdown -2.54%

5.0% VaR (Montecarlo @ 99.9%) -6.40%

0.0% Correlations
TRZ vs S&P500 -19.76%
-5.0% TRZ vs Hang Seng -0.19%
TRZ vs JPM Asian Bond Index -11.11%

7
How our trading system works

8
How our trading system works

9
BNP: Beta Neutral Portfolio
The BNP strategy assumptions are fairly easy to assess. From a mathematical point of view we apply part of the
propositions theorized by Frazzini and Pedersen in their last paper. The remaining part is a proprietary model.

10
GYC: Introducing Global Yield Curves

11
GYC: Yield Curve strategies

Parallel shift
3.0%

GYC captures most yield curve movements 2.5%

 Parallel shifts, steepening/flattening, butterfly trades

Yield To Maturity
2.0%

 Returns on same assets but low correlation 1.5%

 Positive carry and duration neutrality T
T+1

 Directional in the level, slope and convexity

1.0%

0.5%

0.0%
2Y 5Y 10Y Maturity 30Y
Source: Diarch Research

Flattening Convexity Increase

2.5% 3.0%

2.5%
2.0%

Yield To Maturity
2.0%
Yield To Maturity

1.5% T+1
T+1
1.5%
T T
1.0%
1.0%

0.5% 0.5%

0.0% 0.0%

2Y 5Y 10Y Maturity 30Y 2Y 5Y 10Y Maturity 30Y

Source: Diarch Research Source: Diarch Research

12
GYC: Pairs Trading long term rates

13
GYC: Risk Management

14
Performance
Since we started diversifying among strategies our trading system has consistently produced average returns around
with very low draw downs. To achieve these returns we use a leverage of around 5 times the AUM which guarantees a
very good trade-off between risk and returns. If the investor can afford a higher risk appetite this can be increased.

15
Why diversification?

16
Alpha Generator

83% Positive Alpha 1.200%

1.000%

17% Negative Alpha 0.800%

0.600%

0.400%

0.200%

0.000%
0 50 100 150 200
-0.200%

-0.400%

-0.600%

17
Portfolio Revisions

18
Questions & Answers

19
Contacts

Jos Van Trier

Partner and founder
+31 (0) 888 723 900
jos@trzfunds.com

Giancarlo Cobino
Fund Manager
+ 31 (0) 208 083 863
giancarlo@trzfunds.com
gcobino3@bloomberg.net

www.trzfunds.com

20
Disclaimer

21