Written by Alex Botte
Updated over a week ago

Rev. Date May 30, 2019

AltCast does not estimate performance for an investment if its residual risk over the past 3 years[1] is above a certain threshold. This is because [TEST] produces an AltCast performance return estimate for a particular investment by calculating the investment’s factor exposures using the Two Sigma Factor Lens, multiplying these factor exposures by the daily factor returns, and adding the residual return (which is held constant over the estimation period). If a meaningful amount of an investment’s risk and return cannot be explained by the Two Sigma Factor Lens, the AltCast performance estimates will be less accurate.

Please note that when conducting a portfolio level performance estimate, AltCast considers only the overall portfolio residual risk, rather than the residual risk of any individual underlying investment. Therefore, investments with a large residual risk component will still be included in the portfolio level AltCast performance estimate, as long as the overall portfolio risk is below the residual risk threshold.

[1] The minimum amount of data required depends on data frequency. For example, if an investment has quarterly data, [TEST] requires 9 years (or 36 data points) to run analysis. Alternatively, 3 years is required for monthly or daily data.

This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.