Approach
A reason for every model position
The research objective and four principles that guide strategy development, portfolio construction and ongoing model review.
The research objective Exploring returns beyond market direction
VetraSquare studies systematic equity models and how distinct hypotheses can be combined. The research explores limited dependence on market direction and diversification; neither is guaranteed.
Distinct investment hypotheses
RETURN SOURCES
RETURN SOURCES
Each model starts with a distinct economic idea and must be documented on its own.
Diversification across return sources
RESEARCH QUESTION
RESEARCH QUESTION
Testing whether relative company performance behaves differently from broad market exposure.
Model weights within constraints
RISK DISCIPLINE
RISK DISCIPLINE
Model weights are tested against assumptions about market exposure, concentration, liquidity and capacity.
Four principles guide model research
These standards guide development from the first research question through validation and ongoing model review.
Economic logic
An explainable reason for every model position.
Historical results need an economic explanation of why a return should exist, and what could make it fade. For example: how the returns a company earns on its capital compare with what that capital costs.
Evidence after costs
Unseen periods and realistic implementation.
Results must be judged on periods that were not used to build the model, after trading costs, financing and, where relevant, short-borrow costs. Sensitivity to parameters and stability across periods must be examined too.
Portfolio contribution
Test each model’s contribution to the whole.
Models are assessed together, accounting for correlation, shared positions, common factors and liquidity assumptions.
Ongoing challenge
A model must continue to justify its assumptions.
Model results and assumptions are reviewed as evidence changes. Weakening evidence can prompt revision or further testing.
Studying diversification How return sources interact
Portfolio research evaluates return dispersion, correlations between models and sensitivity to common market factors. We assess each model’s contribution within exposure, liquidity and concentration constraints, including changes in correlation across market regimes.
Question first, then test
Next: the research process
How a strategy model moves from a written question through validation and review.