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Jonathan's avatar

So, when you have this view—bonds down, dollar up, commodities down, etc.—do you trade them all or only pick one, like going long on USDEUR, since they are all the 'same' trade or at least based on the same view?

Great article!

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Capital Flows's avatar

Depends. It can be a little more complicated. But you usually want to have multiple exposures to a thesis. It is and isn’t the same trade. Depends on the drivers

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Jonathan's avatar

Ok got you! Would you treat the entire thesis as one trade, risk wise, or would you look at every exposure as a separate trade?

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Capital Flows's avatar

I have clear view that gets updated dynamically. It has clear confirmation and falsification so there is extreme testability to it. Then under that, individual trades with their own confirmation or falsification. If there are multiple trades under a thesis, they have seperate risk because of different vol or correlations. And at the end of the day, your P&L is denominated in the price, not your view. If the view gets falsified, I am almost certainly taking off the positions. You do need to monitor correlations for diversification though. These are in a constant state of change so any diversification view you take is also a bet in itself.

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Isaac Collette's avatar

I love the update

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