For like equities, FX, rates, commodities, crypto. How would you rank them in the level of quantitative intensity? Specifically for commodities, I understand that electricity and gas needs to be seperated out from the rest, but curious to get a holistic view on this.
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Based on the most helpful WSO content, here's a ranking of asset classes by their level of quantitative intensity:
Rates and FX: These are often considered the most quant-heavy due to the need for statistical and correlational analysis, as well as the extensive use of economic and fundamental data (e.g., inflation expectations, swaps/derivatives pricing, yield expectations). The scalability and depth of these markets also make them prime for quantitative strategies, with top traders often generating significant returns using advanced models.
Equities: Quantitative strategies in equities are well-established, particularly with factor models (e.g., value, momentum, quality). However, the performance of these factors has faded over time, leading to the rise of "quantamental" approaches that combine quantitative models with fundamental insights. Liquidity and transparency in equities make them suitable for quant strategies, but they are less reliant on pure quant techniques compared to FX and rates.
Commodities: Commodities trading is less uniformly quant-heavy. Electricity and gas markets, for instance, require significant quantitative modeling due to their complexity and reliance on supply/demand dynamics, weather patterns, and infrastructure constraints. Other commodities, like metals or oil, tend to be more fundamentally driven, though quantitative approaches are increasingly being adopted.
Crypto: While crypto markets are relatively new, they are becoming more quant-driven due to their high volatility, liquidity, and the availability of extensive data. Quantitative strategies often focus on arbitrage, momentum, and statistical relationships, but the market's nascency and inefficiencies make it less mature compared to traditional asset classes.
Other Commodities (Non-Electricity/Gas): These are generally less quant-heavy and more reliant on fundamental analysis, such as supply/demand dynamics, geopolitical factors, and physical market conditions.
In summary, Rates and FX lead in quantitative intensity, followed by Equities, Electricity/Gas Commodities, Crypto, and other Commodities.
Sources: Macro: Rates and FX, https://www.wallstreetoasis.com/forum/asset-management/will-asset-management-industry-just-wither-away?customgpt=1, Trading Power, Carbon & NGOs, Q&A: Multi-strat HF Analyst, Deciding on quantitive majors/career path?
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