Hi,
It is said that the long-only strategy is slightly risky because it is exposed to market risks. What exactly these risks are?
Based on the provided experiments the Long only Cs Strategy shows a 2.5 higher return for the same period than the Long Short Skip CS Strategy.
Links to plots:
LongShortSkipCsStrategyREturn.png - Google Drive
LongOnlyCS_Strategy Return.png - Google Drive
Hi Boris,
The long-only strategy is risky as during a panic scenario in the market there is a sharp drawdown while in the case of a long-short strategy during a panic scenario the portfolio is hedged with the short component.
Yes, the returns are higher in the case of a long-only strategy but it is more exposed to the risks arising due to market dynamics.
Hope that helps!
Thanks,
Akshay