In crypto investing, an Alpha Factor represents the excess return of an investment or trading strategy relative to the return of a relevant market benchmark, after adjusting for systematic market risk (Beta). It quantifies the value added by a portfolio manager’s skill or a trading algorithm’s efficacy, indicating performance independent of broad market movements.
Mechanism
Calculating Alpha involves statistical regression models where an asset’s or portfolio’s returns are regressed against a benchmark’s returns. The residual, after accounting for the benchmark’s influence and the asset’s Beta, constitutes the Alpha. This mechanism requires precise data on asset prices, benchmark indices (e.g., a crypto market index), and risk-free rates over specific periods.
Methodology
Identifying and capturing Alpha factors in crypto markets often involves systematic research into market microstructure, on-chain data analytics, sentiment analysis from social media, or arbitrage opportunities across various decentralized and centralized exchanges. The methodology focuses on developing predictive models or identifying informational advantages that yield consistent outperformance not attributable to general market exposure, subsequently designing trading strategies to capitalize on these identified factors.
SA-CCR provides a standardized chassis for quantifying counterparty risk that can be internally calibrated for dynamic limit monitoring and capital allocation.
SA-CCR systematically increases capital for unmargined trades by applying a long risk horizon, creating a direct economic incentive for collateralization.
SA-CCR systematically rewards the structural integrity of central clearing by enabling superior netting efficiency and recognizing lower operational risk.
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