Predictive Strength
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Predictive Strength
Instantenous Volatility Factor is a proprietary measure of the volatility of an asset, calculated based on a range different lookback periods.
Captures latent liquidity dynamics through directional-change thresholds that act as "circuit breakers" for trend exhaustion. Unlike time-based metrics, this approach identifies regime shifts when price movements reverse beyond specified percentages (e.g., 0.5%-2% thresholds common in FX), making it particularly effective in crypto's fragmented liquidity environment where order book imbalances create asymmetric volatility patterns.
The measure's intrinsic time normalization mitigates false persistence signals from exogenous shocks. By decoupling volatility measurement from physical time sequences, it avoids overfitting to temporary market anomalies like exchange hacks or regulatory announcements that distort traditional GARCH/HAR models.
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To understand a predictive factors predictive power, we create a simple long/short strategy and simulate its past performance (with daily rebalancing):
The strategy is rebalanced daily, on a continuous basis. There are 0.5% transaction costs applied on each position adjustment.
Get started by validating the historical performance of the strategy with our transparent code snippets.
Copy and paste the code snippets below into your Python environment or download the files below.
Predictive Strength
Predictive Strength