Alpha Navigator: Quest for Alpha [July 2022]

Risk assets are rallying, with crypto the best performer. However, recession risks are elevated. Market-neutral pair trades, factor screens, and thematic baskets.

Aug 03, 2022
Alpha Navigator Institutional Report

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Executive Summary

  • Risk assets rallied over the past 1-month, with BTC and ETH the best performers, rising 10.4% and 37.0% respectively.
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  • We introduce our momentum basket, which screens for the top tokens by 1-month price performance, extracted from the top tokens by market cap in each of the Layers 1 & 2, DeFi, GameFi and NFT categories.
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  • The U.S. Fed raised rates by 75 bps last week, in-line with market expectations. While interpreting ‘Fed speak’ often raises more questions than answers, markets latched onto Fed Chairman Powell’s message of potentially decelerating the pace of rate hikes. As of 1 August, the S&P 500 is up 2.7% since the rate hike, with BTC up 1.7% and ETH up 3.2%.
  • Despite the rally in risk assets, they may not be out of the woods yet. All eyes will be on the U.S. CPI print come 10 August, as the Fed has signaled its actions will be data dependent. Also, recession risks are elevated – with the U.S. in technical recession, according to some yardsticks after last week’s advance Q2 GDP print showed two consecutive quarters of negative growth – and it remains to be seen whether the Fed can engineer a soft landing.
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  • Market-Neutral Pair Trader hunts for strongly correlated tokens whose price ratios currently deviate from historical averages – these can be considered as candidates for a market-neutral pair trade.
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  • Our previous issue highlighted BTC vs. ETH, as the price ratio (BTC price over ETH price) was at a peak (2-standard deviation ceiling band). Since then, ETH has outperformed BTC, driving the price ratio back down to the historical average.
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  • We refresh our style-factor screens, which attempt to track momentum, value, growth, and risk. Below we highlight our style-factor screen for the top tokens by market cap in the Layers 1 & 2 category. MATIC posted the best 1-month performance at +67.7%.
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Read the full Alpha Navigator report: Alpha Navigator [July 2022]

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Andrew Ho (Senior Research Analyst)

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