Training Module 3SIGNALS - Generating market/macro insight from data-driven signals

Our Mission

AND MAXIMISE THE PROBABILITY OF SUCCESSFUL TACTICAL ASSET ALLOCATION

AS EFFICIENTLY AS POSSIBLE

TO DELIVER HIGHEST QUALITY MACRO/MARKET INSIGHT

STRIKE THE RIGHT BALANCE BETWEEN SYSTEMATICS AND HUMAN OVERLAY

Core Principles

NO DATA MINING – A DATA SET MUST HAVE A CLEAR, INTUITIVE

RELATIONSHIP WITH A RELEVANT ASSET CLASS

THESE ARE OUR CORE PRINCIPLES

HUMAN OVERLAY – ALGORITHMS ARE “PRE-EDUCATED” BY US ABOUT

THIS RELATIONSHIP BEFORE THEY SCAN FOR SIGNALS

ROBUST SIGNALS SHOULD LIE AT THE EXTREMES OF DATA DISTRIBUTIONS

CONFIRMATION/DIVERGENCE IN DATA SETS BUILDS CONVICTION

There are different approaches to Tactical Asset Allocation

HYBRID

100% SYSTEMATIC

100% DISCRETIONARY

COMMON DECISION-MAKING FRAMEWORKS

We add value to them all.

Data

ClearMacro are dedicated to sourcing “best in breed” data sets

ClearMacro import, screen, score and then systematise BILLIONS of both public and proprietary data points

ClearMacro provide ratings-driven analysis of critical data-driven signals

Examples of our BEST IN BREED data sets:

Critical challenges of data-driven insight

EVALUATING DATA IMPACT/RELEVANCE

DATA HETEROGENEITY

DATA VOLUME

Our solution

EFFICIENTLYextract clear, verifiable data-driven signals generating real-time actionable insight about near-term market direction

OVERLAYhuman interpretation framework onto a systematic data processing engine

FOCUS TIME effectively

and budgets responsibly by knowing the most impactful data sets for macro/market modelling in a real time, real world tactical decision-making framework

WhatInformation doInvestors careabout?

Which aremost impactfuldata sets to derive thisInformation?

How to extract clean signals from noisy data?

How to evaluate the quality of the signal?

InformationCategories

DataSets

SignalExtraction

Validation

Signal construction and interpretation

DIRECTIONALITYA high score implies markets are likely to go up and a low score that they are likely to go down

STRENGTHof latest data point relative to its’ own history. The higher or lower the score the higher the probability of a market move.

BREADTHFor signals that include more than one data set, the higher or lower the score, the more data sets are “confirming” each other

Human interpretation as to impact on market “direction”

3 distributions – data level, momentum and blended

1 to 10 scores represent current position in distribution

Robust back-testing measures signal insight

Raw Data Set

Generate Data

Distributions

Convert to Signal

Evaluation

Our signals are “out-of-sample”

The “back test” series is generated on a point-by-point basis where no

forward looking information is taken into consideration

We have 2 versions of our data sets – “narrative” and “back test”

The “narrative” series is generated by assuming full forward-looking

knowledge of the entire data set at any data point

Narrative Back test

Data Transformation Options

“Level” gives historical context to “absolute position” of any data set. Calculated from context of data series’ historical percentile rank centred around a 5.5 mean.

3 DIFFERENT SIGNALS THROUGH DATA TRANSFORMATION

“Momentum” gives historical context to strength of “recent moves ” of any data set. Generated from z score/normal distribution assumptions.

“Aggregate” A 50/50 blend of Level and Momentum signal.

Signal “Accumulation”

DATA “ACCUMULATION” EVALUATES CONFIRMATION/DIVERGENCE

ACROSS MULTIPLE DATA SETS

Tier 2 signals

Tier 1 signals

Tier 3 signals

Tier 3

Tier 2

Tier 2

Tier 1

Exploiting Signals

SCREENINGQuickly identify high priority focus in global macro opportunity set

ClearMacroTACTICAL

EFFICIENCYHuge time savings on data screening, and cost savings on removing low-quality paid-for data feeds

Global early warning screeners

Which signals work at asset class and market level

Build data sets into single, transparentsignal

Transform a signal into robust, rules-based model

Macro screening

Search engine

Composite Tactical Signals

Systematic Alpha

Models

ALPHAWhich data sets are likely to pay you back in portfolio performance

ClearMacroMODELS

Predictive Signal Screener

Search and rank highly predictive data sets at the asset class or individual market level

Chart the current signal against underlying markets

Transparent out-of-sample back-test signal performance statistics

How it works

INTUITIVEIf signal is successful in the “wrong” direction, it doesn’t make the cut.

ROBUSTAsset class relevance evaluated by equal-weighting market level signals.

FLEXIBLEUser can prioritise signal frequency over signal quality, time horizon, asset class and market

Level, Momentum and Aggregate

(High score -Low score)/10

Acrossdifferentinvestmenthorizons

Ranks for Buy, Sell and Combined signals

Build out-of-sample

signal history

Generate 10 equal

“bands”

Calculate ex-post signal

performance

Rank signal universe on

trading metrics

Ranking definitions

All back-test signal statistics are available – robust and 100% transparent

Our 2 critical ranking metrics are Conviction Score (shown below) and Relevance

Component Statistics

WeightMin Max

Win Probability (%) 50% 0 50

<50 50-70 >70

0 Linear 100

Win/Loss Ratio 25% -25 25

0.01 .01-.99 1 1-1.5

-100 Linear 0 Linear

Avg Return/Max Return 10% 0 10

<0.2 .2-.6 >.6

0 Linear 100

Max Return/Max Loss 10% 0 10

<1 1-1.4 >1.4

0 Linear 100

Avg Risk/Max Risk 5% 0 5

>.6 .2-.6 <.2

0 Linear 10

Conviction Score

Contribution Range Bands and Attached Scores

Relevance = Conviction Score (Quality) * Frequencya.k.a. Is it a good signal? And are you likely to get one often enough to make money?

User flexibility

SEARCH FOR THE MOST ROBUST SIGNALS AT BOTH THE ASSET CLASS AND THE MARKET LEVEL. We build equal-weighted signals and price indices across all markets within an asset class.

CHOOSE HOW YOU TRANSFORM DATA TO GENERATE SIGNALS. Data level, data momentum, hybrid.

PRIORITISE QUALITY OVER FREQUENCY. Toggle Expander to switchbetween 5 and 10 equal signal bands, and measure impact on signal quality.

SEARCH FOR THE BEST BUY, SELL SIGNALS OR BOTH. We think the most robust predictive signals should generate insight at both ends of their extremes.

Macro Screening

Pick your favourite signals to visualise high priority focus areas for global macro R&D

Rank markets or countries against each other on your selected metrics, and instantly chart them

Build signals into composite market outlooks in our Tactical feature or into rules-based strategies in Models

An example of one of our libraries

HERE’S OUR MARKETS SIGNAL LIBRARY