Correlation, divergence & DarwinIA

This video explains our monthly Darwinia trading challenge: why we run it, how it works, and what to expect if you win the allocation. We hope you enjoy it!

Remember the Darwinex Correlation test? This feature tracks the correlation between different DARWINS & so you diversify your portfolio’s risk.

Also, as you may recall, the correlation measure determines a DARWIN’s eligibility for DarwinIA’s prizes (out of two highly correlated DARWINS, only the highest level & D-Score DARWIN is DarwinIA eligible).

Many providers have complained that the correlation threshold was too restrictive. Further, the count of active listed DARWINS keeps growing, which compounds the risk of the excess-correlation trigger kicking in!

With this in mind, we’re relaxing the DarwinIA eligibility criteria when it comes to correlation:

1. New (less restrictive) Correlation Thresholds

Starting today, the new, less restrictive DarwinIA correlation criteria are.

  • If a Provider lists 2 DARWINS with a correlation higher than 0.5, only the one with the highest level & highest D-Score is eligible for DarwinIA.
  • If 2 independent Providers list DARWINS with positive correlation higher than 0.8, only the one with the highest level & highest D-Score is DarwinIA eligible.

This significantly reduces the number of DARWINS being left out due to correlation!

2. New Divergence Threshold

With the growing DarwinIA capital allocation and with several DARWINs gaining Assets under Management at speed, the time has come to activate a max. allowable divergence threshold to enter DarwinIA.

We’re activating the lock-out as we’re experiencing a (much) higher than theoretically reasonable divergence with our DarwinIA investments. High divergence  usually owes to low liquidity when some DARWINS trade during illiquid market conditions –  or when providers market strategies / signals to venues other than Darwinex. In some (rare) instances, divergence has spiralled out of control to both Darwinex & investors detriment.

This is why, going forward: DARWINS with negative divergence ≤ – 1% won’t be DarwinIA eligible.

The DarwinIA lock-out mirrors the DARWIN lock-out methodology announced a couple of months ago. As you may recall, DARWINS with a negative divergence below – 1% were supposed to get closed to new investments.

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You may be asking yourself… how come some DARWINS already reached the lock-out divergence level but have not been closed to new investment yet? The reason is simple: we decided against closing them because this would hinder a major improvement for investors that we are working on (sorry, we can’t tell just yet!).

For the time being, instead of closing DARWINS with high divergences, we’ll stop allocating DarwinIA prizes to them.  Also, if you are planning to invest in a given DARWIN, review its divergence as part of our due diligence!

If your DARWIN is not eligible for DarwinIA due to negative divergence, feel free to reach out to info@darwinex.com: nothing pleases us more than helping you profitably grow your assets under management – divergence hurts us much as it hurts you!

 

 

 

 

 

 

 

 

6 replies
  1. moises
    moises says:

    Nice congratulations on that 🙂 , although, still not agree how one of the most important investable attribute Scalability (for serious trades and investors) have a secondary role in Darwinex. But I understand why…

    Reply
    • The Market Owl
      The Market Owl says:

      Hi Moises – thanks for the nice words.

      One point though: not sure what makes you think that Scalability has a secondary role for us? Why publicly track & disclose divergence on the main interface for all to see? From an investor standpoint, why not invest in non-scalable DARWINs each making 50% a year? The reason some traders make such high consistent returns is precisely that their strategies don’t scale.

      It’s agreed that many strategies won’t be able to manage more than 1 million… but perhaps we can all collectively come up with hundreds, if not thousands of such strategies?
      Why allocate 1 BN to 1 strategy, if you could diversify it across 1000 consistently winning micro-strategies?

      Reply
  2. moises
    moises says:

    Hi Market Owl,
    I perfectly understand your points, but we have a base divergence that leaves to different opinions. (with most part of “traders” at Darwinex also….) and I wish nobody see my ideas as a personal confront, that´s not my idea! Apologies in advance not pretend to offend no one…
    Preliminary points:
    I admire the evolution of Darwinex as broker in what concerns to cost of trade vs execution, now a days is one of the best retail brokers I know :).
    Also Darwinex in general, because I must confess, one of best ideas, (concerning to forex trade), I have seen come up and stay in last years.
    But after that I must confess some disappoint in some subjects, that I still have the hope, they will correct some point in future.
    Scalability:
    With your tools, make a filter for Darwins with scalability les then 2, (very poor!), it will come up with some of most ranked Darwins….
    But if you see in details, I have choose one randomly… average profit trades 5.04 pips!, average loss 5.5 pips!, this have nothing to do with trade, pure and simple not investable in real life, cost of trading, risk/reward, etc… only possible for micro accounts and reduce costs that we have now a days in retail brokers. Normally investors (at least the ones I know), are not available to this type of gambling.
    Stability (your investable attribute…) say it all, maybe few can read what it says, but important information are there.
    Why should one investor, with brains, (not only by friendship and sympathy) will invest in a system that can handle less than 0.5M AoM?), and for a less than 2% return on Darwin with a divergence of 0.5 pips! His expected return will be more than -15%!!!! Is only gambling and bet on good execution of the broker…
    Even I don’t agree, I accept that it still can be a business, what I defend is that investors must be informed!, that’s why, besides others…, I defend that one of most important investable attribute is Scalability, and after it can come many other aspects…
    All this talk to say my opinion is that Darwinex have great tools, and with then, can do much better to effectively much good traders with good investors….
    All the best,
    Moises
    PS: please I only won’t to contribute with positive ideas to improvements on Darwinex, not to offend anyone, not to say that my system is better, etc…. fortunately we have freedom to choose the systems to invest in, to trade, to speak, etc…

    Reply
    • The Market Owl
      The Market Owl says:

      Thanks a lot for the detailed information Moises.

      I agree with your points. The one thing that I’d just like to stress is that we’re not telling anyone where to invest. We publish the information for everyone to see – and I totally agree scalability is going to become more and more of a priority, as investor assets under management build up. When there’s no investors (which is where we were 9 months ago), scalability wasn’t a factor. Going forward, everyone will learn how important a factor it is.

      6 months ago no-one gave a shit about scalability when we insisted on introducing it. In fact, I don’t think anyone else actually tracks it. My only point is: you’ve been able to do that analysis, because we publish the information!

      Reply
      • moises
        moises says:

        Many thanks, keep the good work…
        As normally i try to be the most fair possible, I must confess, in this type of business Darwinex start to be effectively the most transparent partner that any trader and investor can find… almost all important information, directly or indirectly, can be checked 🙂
        With all respect and with the goal to try to contribute for something that have greats merits here goes one suggestion, from a just a simple curious tuga guy, on everything trading related:

        Contact 8-10 of the biggest investors, that you can be related to, invite them to a 1H meeting (of course you will have to include lunch… ) ask then what definitely is important for them when they have to decide invest or not invest in a trader/system…

        After that meeting share with all of us here what have come up….
        In my opinion it will be very interesting, and I guess a big surprise for many people of us in Darwinex community…
        all the best,
        Moisés

        Reply

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