What's a decent beta for a mean reverting system?
Hi Jane,
A decent beta for a mean-reverting system depends on several factors, such as the underlying asset being traded, the strategy's time frame, the trader's risk tolerance, and the overall market conditions.
In general, a beta value of less than 1 indicates that the strategy is less volatile than the overall market, while a beta value greater than 1 suggests that the strategy is more volatile than the market.
For a mean-reverting strategy, a beta value close to zero or negative may be appropriate since the strategy aims to exploit short-term deviations from the mean rather than following long-term trends. However, a negative beta may also imply that the strategy is negatively correlated with the market and may not perform well during market downturns.
Ultimately, the appropriate beta value for a mean-reverting system will depend on the specific details of the strategy. It is recommended to perform extensive backtesting and risk analysis to determine an appropriate beta value for a particular system.
Hope this helps!
Thanks,
Akshay