C A SE STUDY Building an investment framework that shows what s really driving the markets When research firm Quant Insight (QI) wanted to develop a solution for pricing securities based on macro factors, it turned to global research and analytics firm The Smart Cube to transform its thinking into reality. A trust-based relationship and our specialist combination of expertise in quant modelling, algorithm development and technology, helped QI to deliver a quantitative framework for understanding the drivers of financial markets and deriving fair valuations of securities. thesmartcube.com
Business Challenge In today s financial markets, the distance between geographies continues to shrink, while asset classes continue to become ever more interconnected. Add to this the rapid increase in available data, and the result is rising financial market complexity that makes alpha generation more challenging for asset managers and traders. In 2014, research firm Quant Insight (QI) developed a strategy for estimating fair value of securities based on macro factors. QI recognised that to create an attractive solution for the market, it needed to be able to pull together information from a wide variety of sources, involving a huge volume of data and running complex quantitative algorithms, which would need to be managed by a powerful technology platform. QI knew that to develop such a complex framework would require specialist quantitative modelling capabilities that were beyond its core competencies. Many projects at smaller companies and start-ups fail because they do not give themselves enough room for the unknown, said QI CEO, Krishnan Sadasivam. Firms often fail to incorporate any level of risk or uncertainty into their product development plans and do not adequately forecast the time, resources and skills required. For this reason, QI opted to seek external support to develop the framework, selecting The Smart Cube (TSC) as its partner. QI s senior management had worked with TSC previously and knew the company had the ideal combination of analytical, engineering and quantitative modelling skills, plus the extensive financial services experience, required for the task. The Smart Cube solution TSC were involved in the project from the very beginning, and started by working alongside QI to carry out the research needed to build the quant framework around the strategy, and to gather sources for the large number of securities QI wanted to analyse. Following initial conversations about the strategy, the TSC team took control of the project, providing a single point of contact Nikhil Agarwal, The Smart Cube s head of quant for QI who not only understood the quant modelling requirements for the strategy, but also the financial markets context, and the technology and application development needs. Agarwal said: On a project such as this, typically a firm would interact with an IT team that doesn t have the expertise in quant modelling, making the process more difficult and risky. The research phase led to the conclusion that the solution should be an enriched web-based application, which would enable users to log in and review many different asset classes, their values and sensitivities. TSC provided 2 / thesmartcube.com
a holistic solution, involving quant analysis, algorithm development and application build, as well as the underlying server and database technology. The platform implementation required a diverse range of expertise, including solution architecture, database development and administration, user interface design, and network engineering. A team of five managed the implementation, and were rotated to leverage their diverse skill sets at different points in the project. Results TSC delivered a valuation framework that helps to identify investment opportunities for QI s clients. Large volumes of relevant macro and market data are updated continuously and over 4,000 instruments are scanned in real time. The largest valuation gaps are revealed throughout the day, and this analysis allows identification of opportunities that would most likely otherwise be missed. TSC has brought together modelling techniques and technologies to provide unprecedented insights into the valuations of market securities and the underlying dynamics of financial markets. The combination of data science, mathematics, domain expertise and processing power now allows QI to derive precise answers to the most fundamental questions in financial market investing, including: Given available information, what is the objective fair valuation of a market security? What drives the price? Where are the largest valuation gaps and trade opportunities? QI s coverage of financial markets is comprehensive, encompassing equity indices and single stocks, currencies, rates, commodities, credit and volatility markets. Both directional and relative value approaches are included, as are emerging markets. Analytics are easily accessible over the web, and through regular reports and live notifications across the day. 3 / thesmartcube.com
Value delivered TSC s combination of quant knowledge and IT expertise is cited by Sadasivam as a critical advantage. The Smart Cube understands what I am thinking and what I am trying to achieve thanks to a good working relationship and a team with extensive experience in quant modelling. I think of The Smart Cube as a partner, not as a supplier. By working with The Smart Cube, QI freed up its in-house analyst team to work on business-critical tasks, such as enhancing coverage, expanding the scope of research and analytics, and increasing time spent in the market. As a company, we needed flexibility, said Sadasivam. Instead of hiring four to six people in-house and hoping they d work out, external resources and skills were deployed seamlessly when needed, so partnering provided that flexibility. No one knows exactly how many people and what type of skills are required when starting out on a project such as this, but with The Smart Cube we were able to call on the financial, quantitative and strategic resources of its 600-strong analyst team as and when required. Ultimately, The Smart Cube has created a comprehensive solution to understand what s really driving the markets, encompassing both equity indices and single stocks, currencies, rates, commodities, credit and volatility markets, which enables us to help our clients make profitable trades. QI offers online access to quantitative analysis through its proprietary model, updated every 15 minutes to give traders, portfolio managers or risk managers, a quant s-eye view of the main drivers of pricing in specific assets and model valuations providing facts rather than subjective opinion. The head of trading at a 3 billion ($3.8 billion) US hedge fund is an enthusiastic user: QI allows us to say: We think inflation expectations are going up. What is the best way to play that? And it might be something you wouldn t expect. It s opened our eyes to looking at different ways to play thematic trades, he says. 4 / thesmartcube.com
The Smart Cube is a global provider of research and analytics solutions, primarily serving the CPG, financial services, retail, life sciences, energy and industrials sectors. Addressing the needs of businesses in the intelligence age, our customised solutions provide a truly connected approach, delivered by talented minds and strengthened by Amplifi, our organisational intelligence platform, rich with knowledge, cutting edge tools and advanced analytics. We work with a third of companies in the Fortune 100, helping them make smarter decisions, accelerate value and gain a competitive edge. Headquartered in the UK with additional offices in the USA, Switzerland, Romania and India. Intelligence. Accelerated. United Kingdom No 1. Farriers Yard 77 Fulham Palace Road London W6 8JA United Kingdom United States 33 N. Dearborn Suite 805 Chicago IL 60602 USA Switzerland Kornhausstrasse 3 CH-9000 St. Gallen Switzerland Romania Floor 5, Entrance B, 2 Martin Luther Street, Timisoara, 300054 Romania India Level 5 Tower B Windsor IT Park A1 Sector 125 Noida 201301 India info@thesmartcube.com thesmartcube.com