Anybody can give me some pointers about "market neutral" trading strategies?In my backtest, if I make my positions dollar-amount market neutral, the results were good; but when I changed my positions to other weightings, the results are bad...I began wondering why "market neutrality" is good...Any thoughts? Thanks a lot!

Hi,Can you please elaborate what you mean by "other weightings" ?For pair trading, shouldn't the weight be the cointegration coefficient between the two stocks ?Thanks & RegardsPsY

What sort of market would favour neutrality? My answer is an efficient market in which prices match objective value. Since markets are not efficient, you should be able to improve on market neutrality by being neutral with regard to objective value. Since objective values are not known, that requires a model of market inefficiency in which one doesn't speculate about objective value per se (one is neutral with respect to them).This is a distinctly different approach from trying to model objective value directly -- which is what most punters do. So, mizhael, on that basis, I would suggest that if your model does better when market neutral, then you are not modeling inefficiency very well when you change your weights.