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5 Mins Read

Meet GAIAA (Genetic Algorithm-based Iterative Asset Allocation)

Dear Investor, meet GAIAA (Genetic Algorithm-based Iterative Asset Allocation).

In Darwin’s evolutionary theory, only the fittest survive the battle of natural selection. Similarly, Kristal.AI’s biology-inspired methodology selects the best portfolio design for every individual’s needs. Our proprietary AI uses an underlying genetic algorithm to choose and modify strategies from a pool of thousands of permutations.

At each stage, the curated strategies are tested against user-defined objectives, and only the ‘fittest’ strategies are chosen to finally evolve into a risk-limiting model which optimizes asset allocation and maximizes returns.

GAIAA is a multi-tasker and forms the backbone of our AI-enabled investing platform. We also use bootstrap and other algorithms to facilitate better portfolio planning. Let’s take a look.

1. ETF curation using GAIAA

Kristal.AI follows a meticulous 4-step methodology for scoring each equity ETF. Here’s how our algorithm does it:

  • The universe of USD-traded ETFs are first categorized into large-cap, mid-cap, or as region-specific ETFs

  • We apply some Math (Sharpe ratio, return percentage, volatility, liquidity)

  • Now, we add some History to the mix. We dig into the archives to understand each ETF’s historical performance against a standard

  • Then, we rank each ETF and choose the best in each category

  • This gives us a pool of funds to use for our strategies

  • GAIAA jumps into the fray now. She curates funds from this pool of the best strategies and recommends the best ones for your portfolio

And this is the simplified version. The quantitative and qualitative parameters used to define each ETF’s Kristal Score are diligently analyzed. This is a purely logic-based process relying on calculations using both long-term and daily performance.

 

2. Our growth algorithm and how it helps your portfolio
Growth algorithm is a portfolio optimization algorithm which aims to maximize the utility of a portfolio with the constraint that the volatility should not exceed a defined threshold. Utility here is defined as a measure of relative satisfaction that an investor derives from different portfolios.
The more money you have, the less the marginal gain in happiness when you gain a dollar. As a corollary, your happiness when you gain a dollar is less than the magnitude of your sadness when you lose a dollar.
This result doesn’t depend on how many dollars you already have. The less risk you are willing to take, the more the difference between the magnitude of sadness when you lose a dollar and the magnitude of happiness when you gain a dollar.
So coming back, we now have a portfolio, and the returns of the portfolio simulated across various investment scenarios (derived from our bootstrap algorithm). First, we convert this returns number into a wealth number, and then apply the appropriate payoff function based on the investor’s risk preferences. We then compare numerous such portfolios and the average utility produced by each, and pick the portfolio that has the largest average payoff.

 

3. Our asset preservation algorithm and what it does
Asset preservation is a conservative investment strategy where the primary goal is to prevent loss and preserve capital. Most modern portfolio optimization methods are extensions of the mean-variance approach proposed by Markowitz which allocates assets based on a risk-return computation.
Kristal’s asset preservation algorithm is an extension of this core approach which identifies portfolios with asset preservation as the underlying investor objective.
On a scale of nothing to dream-like returns, our algorithm is handmade to give you returns that are better than – or at the very least, at par with – a term deposit, while minimizing risk.
To understand how our asset preservation model works and the technical parameters used to deduce relevant strategies, we suggest you read our in-depth article.

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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Accredited Investor Declaration

This is offered only to Accredited and Institutional Investors as defined under the Securities and Futures Act, Chapter 289 of Singapore (“Act”), which broadly comprises of regulated financial Institutions, large corporates, high net worth individuals and sophisticated investors.

An Accredited Investor is an individual
  • Whose net personal assets exceed in value SGD 2 million (or it’s equivalent in a foreign currency) with value of his/her primary residence capped at SGD 1 million, or
  • Whose financial assets (net of any related liabilities) exceed in value SGD 1 million (or it’s equivalent in a foreign currency), or
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