Partnership with Comfort Zone Investments a.s.

 

What kind of partnership are we looking for?

Our investment strategy is traded on international markets, primarily in the U.S., giving it global scope.

We aim to work with a strong partner who appreciates our investment strategy and potential. The cooperation can take place in three ways:

a) Provide our algorithmic investment strategy to other investment funds as a managed account. We trade with Interactive Brokers, where all executions are programmed.

b) An exclusive collaboration where we would co-found an investment-regulated fund acceptable to Family Offices and Fund of Funds in terms of operational risk.

c) Our team would become part of another regulated fund through a merger and provide our strategies in a collaborative win-win strategy module (sharing performance and management fees).

Who are we?

Our lead trading strategy developer, Peter Kostovcik, started working in algorithmic trading at the age of 17 when he was drawn to the application of machine learning to the industry. Today he is 31 years. Peter chose to study at Charles University, majoring in Probability, Mathematical Statistics, and Econometrics. Peter chose this field with a precise determination - to become an algorithmic trader.

On the other hand, Petr Tmej devoted himself entirely to algorithmic trading at 24. Petr is 37 years old now. Petr was a Ph.D. student at Linkoping University, Sweden, where he studied applying statistical processes in manufacturing. In 2015, Petr started his fund career in one of the first quant funds in the Czech Republic. He was a leader of the quant development team.

In 2020, they established their own fund Comfort Zone Investments a.s.  

What technology do you use for trading?

We use the Python programming language combined with fully automated management of daily performance reports for clients for research, development, and live trading. 

At the same time, thanks to automation, we prepare all data for audits and accounting within the required national legislation and reports for the Czech National Bank. This increases the overall efficiency of internal processes and enables cost optimization.

Since the company's inception, we have been striving to automate all of the company's key processes:

Automated Solution.png

What company do you use as a brokerage?

In its 44th year, Interactive Brokers Group, Inc. is a broker-dealer with over $10 billion consolidated equity. Standard & Poor's has rated IB Group the highest investment grade. In addition, IB Group and its affiliates execute more than 2,499,000 trades daily, making it one of the largest brokerage firms in the world. As a publicly traded company, IB must disclose its financial results quarterly and is subject to strict regulatory measures by the Securities and Exchange Commission (SEC) and FINRA (Financial Industry Regulatory Authority).

We chose this brokerage for these reasons:

1) Cheap commissions

2) Advanced algorithmic trading execution orders

3) Availability to trade international markets (America, Europe, Asia).

What makes you different from the competitors?

Our fund's performance. Since launching our investment strategy, we have systematically beaten most funds and the S&P 500 stock index as our benchmark. You can check our performance here:

Performance report in USD, EUR

What and how does your investment strategy trade?

The investment strategy responds dynamically to current events in global markets by rebalancing a portfolio of a wide range of assets in the form of ETFs, Stocks, and Futures daily. Our A.I. Management Unit selects the best candidates: Futuristic Portfolio Manager. Our artificial intelligence systematically beats the markets and allocates capital to all public sectors. It looks for opportunities where they exist. Adaptation is the basis of evolution and development. Our investment strategy has the same qualities.

What is your niche?

Our company proceeds in R&D with a data science approach. We use cutting-edge machine learning methodologies to work with noisy time series, approaches to test the robustness, and advanced feature engineering to avoid black boxes. Our flagship adaptive strategy is based on neural networks and works on Google Cloud fully on Python. We were motivated by facial recognition algorithms to find suitable stock pairs in the market-neutral system and then apply random forests to select the best signals. The research continues developing proprietary probabilistic models, predictive distributions, regime shift analysis, extreme value theory, nonlinear dynamical systems (chaos theory), and the newest advances in reinforcement learning.

What is your alpha-statistical advantage?

The volatility means the opportunity to us. The key is our adaptive diversification to constantly changing market conditions. Example for all:

You can see it best illustrated in this chart below in the behavior of our investment strategy since the beginning of this year:

sectors_all.jpg

The black curve represents our investment strategy, which is net of all fees, so it is a net return to the client. The key to this success is our automated algorithm: an A.I. controller that dynamically reacts to current events in global markets by rebalancing a portfolio of a wide range of assets in the form of ETFs, stocks, and futures. Trades assets then includes all market sectors and commodities that come to mind: Energy, Materials and Metals, Real Estate Indices, Healthcare, Blockchain and Cryptocurrencies, I.T. segment, Communication Technology, Heavy Industry, Banking sector, etc. Important Facts.

Moreover: The grey zone represents Cash, or how much capital we leave aside. As you can see, during the significant downturns in the stock markets, our strategy has tended to stay "on the sidelines" and keep a substantial amount of assets in Cash. Still, the strategy managed to generate nearly 15% return (net of fees) from the beginning of the year through March 28. How? The answer lies in intelligent sector trading. Most of our returns were generated by the energy sectors after the war. Our correlation with the S&P 500 became negative -47%.

In contrast, our correlation with the S&P 500 was positive before the war, specifically +59%. This demonstrates how our A.I. algorithm is self-adaptive and can quickly adapt to current events. Times are incredibly dynamic and constantly accelerating, thanks to digital technologies. It is no different in the financial market environment. You need to react to changes flexibly and rebalance your portfolio very proactively. Our investment strategy has undergone detailed testing over 20 years on thousands of time series. A market environment with a massive amount of data is thus an ideal environment to use A.I. But it is easier said than done. And that's where our added value lies. We've been dedicated to applying A.I. in market environments our entire career, and we have a unique proprietary solution.

What is your income potential vs. costs?

The goal of startup investors is their potential for exponential revenue growth with linear cost growth. We are just such a company. We have the potential to automatically trade hundreds of millions of dollars of trading in the most liquid publicly traded markets while remaining a small but efficient team. Our revenue growth potential is shown graphically below:

Startup.png

Who are your target clients?

In the current alternative fund Comfort Zone Investments a.s. we provide collective asset management under Section 15 of the Act on Investment Companies and Investment Funds (ZISIF). The company is accordingly registered with the Czech National Bank. Interested investors must meet the criteria of a qualified investor, i.e., invest at least the equivalent of EUR 125,000. For the time being, we have a purely Czech clientele and can continue to be approached by HNWIs. 

However, our goal is to have a regulated foreign fund that meets the Operational Due Diligence (ODD) of international Family Offices and Fund of Funds. We have a clear vision, contacts, and strategy for approaching these institutional clients. Whether through existing marketplaces or attending conferences where this specific clientele can be very well targeted. A simple rule of thumb applies here: The longer the quality track record and the proper ODD treatment, the higher the likelihood of investment, which can be in the tens of millions of USD. These clients are interested in investing in uncorrelated and absolute return solutions.

What are the risks that your investment strategy stops working?

Based on historical backtests, our trading strategy works worldwide in American, European, and Asian markets. That is a clear sign of extreme robustness. The strategies are stress tested by advanced statistical methods. Moreover, the fundamental statistical advantage was verified on a statistical sample of more than 50 years of data.

What are your operational risks?

The company is owned by two co-founders who have created the entire technology and structure. We have been crucial in creating a healthy company culture with excellent growth potential. We have not paid ourselves any royalties while building the entire infrastructure. The company is debt-free and yet owns very advanced technology and solutions.

We are at the beginning of a long journey with potentially great success.

Currently, we are 5 active people on the team. Petr Tmej is the company's CEO; Peter Kostovcik is the Head of quantitative research; Renata Tmejova is a Board member who takes care of administration. Jan Vecko and Jakub Heder are responsible for the Trading desk.

In the future, we need to find teammates for the company for whom algorithmic trading will be a life philosophy and passion as much as it is for us. To do this, we have created a clear recruitment plan.

What is the historical performance of your investment strategy?

Our expertise lies in well-conducted backtests to the extent that the historical performance is relevant. The principle behind our development is that investment strategies have been trained on data since 2007 as pure out-of-sample. The principle of the Futures strategy is based on the findings of the Stock portfolio. Still, unlike stocks, we apply stop-losses and profit targets, which significantly change the overall distribution of profits and losses. We have included the Futures portfolio in the Live trading in September 2022. The correlation between the Futures portfolio and the Stock portfolio is only 26%, which is why our Sharpe Ratio increases when we allocate 60% to the Stock portfolio and 40% to Futures.

czi_stocks_etf_futures.jpg
Table.png

* Max Drawdown = maximum drawdown in historical testing
** MC Max DD = Monte Carlo Maximum Drawdown - determines the theoretical maximum drawdown in the future with 95% probability (worst-case scenario). Monte Carlo mathematical methodology is commonly used to determine the maximum drawdown in the future
*** Longest DD = the longest drawdown in the testing framework (in our case it does not correspond to the maximum drawdown)

The performance is gross (fees are not included)

Can you tell us more about your machine-learning process?

The following diagram is a simplified daily process of selecting a portfolio from the asset universe up to execution:

Process.png

How do you manage ESG?

Our executions are executed by an algorithm whose basic principle is to deliver returns regardless of what regime the markets are currently in. This of course entails the possibility of trading any publicly traded asset that may not be contributing to positive change in the world at any given time. But in order to contribute to a better and sustainable world, we are prepared, with a strong partner, to divert part of our management and performance fee revenues to sustainable projects. We are ready to discuss with our partner what form this should take.

Any final words? Why do you think you have a good business plan for the future?

Today's environment is unique due to a trifecta of the 40s' high debt load, 70s' inflation, and 90s' overvaluation. It is important to note that these factors matter within a global macro view. A substantial amount of money in circulation comes from debt. The last time we had such a high ratio of U.S. Government Debt to GPD was in the 1940s after WWII. Moreover, the Western world is facing a counterforce in Russia and China trying to set up a new world regime. The market is still too overvalued after an unprecedented rally from 2009 - 2022. These indications are awful signs for traditional investments. Therefore, investors must look for an alternative absolute return investment strategy that is armed for today's uncertainties and high inflation with the possible shortest investment horizon: The fully automated strategy responds dynamically to current events in global markets by rebalancing a portfolio of a wide range of assets in the form of ETFs, Stocks, and Futures daily.

Kind regards

Petr Tmej

CEO & Co-Founder

Comfort Zone Investments a.s. 

Please don't hesitate to contact me:

LinkedIn

Petr Tmej Algorithmic Trading.jpg