Quantitative Models and Construction Methods 1. Model Name: Index Enhanced Portfolio (CSI 500 Enhanced Portfolio) - **Model Construction Idea**: The model aims to generate excess returns relative to the CSI 500 index by leveraging quantitative strategies and factor-based stock selection [48] - **Model Construction Process**: - The portfolio is constructed based on a strategy model that selects stocks with favorable factor exposures - The portfolio's holdings and weights are optimized to achieve the desired exposure to selected factors while managing risk and tracking error relative to the CSI 500 index [52] - **Model Evaluation**: The model has demonstrated significant excess returns over the CSI 500 index since 2020, though it experienced underperformance in the most recent week [48][50] 2. Model Name: Index Enhanced Portfolio (CSI 300 Enhanced Portfolio) - **Model Construction Idea**: Similar to the CSI 500 Enhanced Portfolio, this model seeks to outperform the CSI 300 index through quantitative strategies and factor-based optimization [55] - **Model Construction Process**: - The portfolio is constructed using a strategy model that emphasizes stocks with favorable factor exposures - Holdings and weights are optimized to balance factor exposure, risk, and tracking error relative to the CSI 300 index [58] - **Model Evaluation**: The model has achieved consistent excess returns over the CSI 300 index since 2020, despite underperforming in the most recent week [55][56] --- Model Backtesting Results 1. CSI 500 Enhanced Portfolio - **Weekly Return**: 3.04% [48] - **Excess Return (Relative to CSI 500 Index)**: -0.24% [48] - **Cumulative Excess Return (2020 to Present)**: 49.91% [48] - **Maximum Drawdown**: -4.99% [48] 2. CSI 300 Enhanced Portfolio - **Weekly Return**: 1.33% [55] - **Excess Return (Relative to CSI 300 Index)**: -0.36% [55] - **Cumulative Excess Return (2020 to Present)**: 33.78% [55] - **Maximum Drawdown**: -5.86% [55] --- Quantitative Factors and Construction Methods 1. Factor Name: Beta (BETA) - **Factor Construction Idea**: Measures the sensitivity of a stock's returns to market movements, capturing the systematic risk of the stock [60] - **Factor Construction Process**: - Beta is calculated using regression analysis of a stock's returns against the market index returns over a specified period - The formula is: $ \beta = \frac{\text{Cov}(R_i, R_m)}{\text{Var}(R_m)} $ where $R_i$ is the stock return, $R_m$ is the market return, Cov is covariance, and Var is variance [60] - **Factor Evaluation**: Beta factor exhibited high positive excess returns in the recent week, indicating strong market preference for high-beta stocks [61] 2. Factor Name: Residual Volatility (RESVOL) - **Factor Construction Idea**: Captures the idiosyncratic risk of a stock, representing the volatility of its returns unexplained by market movements [60] - **Factor Construction Process**: - Residual volatility is derived from the standard deviation of the residuals in a regression of stock returns on market returns - The formula is: $ \text{RESVOL} = \sqrt{\frac{\sum (R_i - \alpha - \beta R_m)^2}{n-2}} $ where $R_i$ is the stock return, $R_m$ is the market return, $\alpha$ and $\beta$ are regression coefficients, and $n$ is the number of observations [60] - **Factor Evaluation**: Residual volatility showed significant negative excess returns in the recent week, indicating a market preference for lower idiosyncratic risk [61] 3. Factor Name: Liquidity (LIQUIDITY) - **Factor Construction Idea**: Measures the ease of trading a stock, often associated with trading volume and bid-ask spreads [60] - **Factor Construction Process**: - Liquidity is typically quantified using metrics such as turnover ratio or Amihud illiquidity measure - The formula for Amihud illiquidity is: $ \text{ILLIQ} = \frac{|R_i|}{\text{Volume}_i} $ where $R_i$ is the stock return and Volume is the trading volume [60] - **Factor Evaluation**: Liquidity factor performed poorly in the recent week, reflecting weak market demand for highly liquid stocks [61] --- Factor Backtesting Results 1. Beta Factor - **Weekly Pure Factor Return**: Positive [61] 2. Residual Volatility Factor - **Weekly Pure Factor Return**: Negative [61] 3. Liquidity Factor - **Weekly Pure Factor Return**: Negative [61]