Strategies · Library · Currencies
§8.2.1Carry
High-minus-low carry
A variant of §8.2 Carry trade
Rank currencies by forward discount, buy the top group and sell the bottom group to get a dollar-neutral portfolio. Group size depends on how many currencies are used.
- Asset class
- Currencies
- Held for
- Months
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Forward discount per currency.
- Entry and exit
- Rebalance on a one-month cycle.
- Sizing
- Equal weights within each group.
How it fails
- Crash risk
- Few currencies
- Transaction costs
Data it needs
- forward rates
- spot rates
No forward or rate data.
How ARCANE uses it
Background for FX Calls only.
Needs forwards and shorts.
Filed under the carry card
Own what pays more than it costs to finance (the return if prices stand still) and sell what pays less, across currencies, bonds, commodities and stock indexes.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 75% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §8.2.1, p. 88 of the SSRN version. Described in our words. Carry is ARCANE’s filing, not the book’s.