The XMonetae Assembly Line: An Inside Look

XMonetae Blog Post written by Julian Marchese (CEO & CIO) & Nigel Noriega (CTO)

In my last post, I touched on the concepts that lay the systematic foundation of our investment philosophy. In this post, I’d like to show how these concepts are implemented in practice – more specifically, XMonetae’s “assembly line” framework.

One of our main objectives is to provide our investment team with the necessary tools to most efficiently go from a strategy idea to a live production trading algorithm. These tools fall into two broad categories for our assembly line:

  • Rigorous conceptual strategy development cycle
  • Technology infrastructure facilitating a robust workflow

The diagram below describes the XMonetae assembly line at a glance:

The XMonetae Strategy “Assembly Line”

The Strategy Development Cycle

A rigorous cycle for testing and experimenting with new strategy hypotheses allows for Idea Generation at every step in the process. Each stage of this iterative system gives the investment/research team feedback on when to accept, reject, and create new hypotheses. It’s critical, however, to be thoughtful in the early part of the assembly line.

Bias early on in a strategy’s development is when its most harmful. As a result, our cycle mitigates bias at various steps during the conceptual assembly line’s first half:

  • Unambiguous Hypotheses: The strategy hypothesis (i.e. the economic intuition for why you should be paid to take some kind of risk) must be well defined prior to testing. Conclusions derived from testing the strategy cannot influence the initial hypothesis and bias strategy optimization.
  • Representative Data Samples: The in-sample period(s) should include varied market regimes for a complete picture of true performance (i.e., if you seek to develop a long-only stock trading strategy, be sure to include 2008 in your backtest!).
  • Limited Optimization After Out-of-Sample Tests: If backtesting results are too poor relative to assumptions prior to testing, unapologetically move on to the next idea in the spirit of iterative design.

The Technology Infrastructure

Implementation of industry-standard technologies enables all the measures taken in the conceptual assembly line. Data acquisition, storage, and proper backtesting techniques are all an integral part of XMonetae’s process. The various key services the infrastructure provides are:

  • Comprehensive Databases: A variety of collected and easily accessible financial data (e.g. orderbook depth, ticks, OHLC, fundamentals).
  • Rigorous Data Cleaning Methodologies: Data from many different sources unified into one format and pruned for outliers/inconsistencies.
  • Data Science Tools: Standard statistics software for investigating and validating behaviors across asset classes.
  • Realistic Backtesting Processes: A mirror of live trading environments to minimize time and unforeseen obstacles between strategy development and deployment.
  • Interactive Visualization Dashboards: Real time graphs to depict different dimensions of strategy and portfolio performance.
  • Extensive Alerting System: Automated text/email alerts for monitored fund performance, risk metrics, volatile market movements, and atypical trading behavior.

As complex as a hedge fund’s infrastructure may be, new investment team hires should be able to intuit how to work with the existing assembly line framework. All documentation needs to be comprehensive so researchers & developers are able to improve functionality without significant time loss. With thoughtful documentation, any infrastructure can be easily refactored and improved with the advancement of relevant technologies and data science.

Once the major components of the technology are in place, efforts can be re-allocated towards furthering data acquisition. The assembly line and the alphas it produces are only as effective as the data quality fueling the process.

Reproducible Success

Ultimately, the assembly line process is a powerful tool when wielded properly. This is why it is equally important to maintain robust procedures to mitigate bias when discovering new alphas. We establish rigorous pipelines and workflows at XMonetae to ensure we are efficiently using the tools at our disposal, maximizing our portfolio’s chance of producing risk-adjusted return in a systematic and reproducible way.


NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. There is no guarantee that investment objectives, or risk or return targets discussed in this material will be achieved. The data provided is for information purposes only. This material is not intended to be read in isolation and may not provide a full explanation of all the topics that are presented and discussed. Information contained in this material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This material should not be considered a recommendation or offer to purchase or sell any particular investment. Investors should consult a financial advisor/financial consultant before making any investment decisions.

Julian Marchese
CEO & CIO of XMonetae Capital