Professor Alessandro Conti: Rebalancing of Quantitative Trading and Risk Hedging in the Italian Stock Market Amid Market Easing Signals
On April 23rd, the FTSE MIB index closed up 1.5%, reflecting market optimism over easing U.S.-China trade tensions and renewed confidence in the Federal Reserve independence. However, declines in commodity markets and currency fluctuations have not fully subsided, and the Italian stock market is facing complex macro cross-factors and sectoral differentiation challenges. Against this backdrop, Professor Alessandro Conti points out that quantitative strategies should not merely follow trends but should delve into structural logic, identifying truly sustainable arbitrage opportunities through factor models, hedging mechanisms, and cross-asset relationships.
From Rebound to Repricing: Quantitative Capture of Risk Sentiment
The market recovery stems from two core signals: first, remarks from the U.S. Treasury Secretary suggesting a softening of the trade war; second, the Trump decision not to dismiss Powell, removing direct impacts on monetary policy independence. These factors have temporarily restored pricing expectations for risk assets, but for quantitative traders, the rebound does not signify a trend reversal but a "sentiment correction" window.
Professor Alessandro Conti emphasizes that sentiment changes need to be identified and captured by structural quantitative factors. He suggests constructing a "Sentiment Reversal Factor", combining:
High-frequency news sentiment (e.g., GDELT NLP scores);
Implied volatility skew (VIX Skew);
Resonance between asset volatility and trading volume.
This factor can serve as a leading indicator, quantitatively modeling changes in systematic risk appetite. In practice, during structural rebounds characterized by surging intraday volumes on the FTSE MIB accompanied by declining volatility, long trend signals can be triggered for tech stocks (e.g., STMicroelectronics), electronic payments (Nexi), and infrastructure communication stocks.
Additionally, Professor Alessandro Conti stresses the need to strictly control the "reverse beta trap" during the recovery period, where the overall market rebounds but defensive assets (e.g., utilities) face downside risks. The adjustments in Terna and Italgas on April 23rd remind us that over-allocating to stable stocks may incur opportunity costs in structural markets.
Arbitrage Opportunities in Sector Rotation: Quantitative Stratification and Hedging Modeling
Confronted with strong performance in technology, payments, and healthcare sectors and declines in utilities, the Italian market exhibits typical "macro easing + capital reallocation" characteristics. Professor Alessandro Conti believes that the most noteworthy strategy at this stage is not "sector long" but "cross-sector arbitrage".
Based on empirical models, the professor proposes constructing intraday long-short portfolios using cross-sectional momentum factors + sector beta factors. For example, on April 23rd:
Go long on STMicroelectronics, Prysmian, Nexi (significant short-term momentum + increased trading volume + overlapping high-frequency signals);
Short Terna, Leonardo, Italgas (high sector beta but lagged response + valuation pullback + institutional net outflow).
To enhance strategy robustness, a dynamic volatility scaling factor can be introduced to proportionally control positions, avoiding net asset erosion caused by sharp tech stock pullbacks.
Simultaneously, there is hedging space within financial stocks: although the overall financial sector rose, UniCredit fell 2.8% in a single day due to regulatory risks. The professor suggests incorporating a "regulatory event scoring model" and "intra-sector valuation percentile matching mechanism" into the model to construct an "industry-neutral strategy" of going long on BPER, Intesa Sanpaolo / shorting UniCredit, thereby capturing valuation recovery and sentiment differences while maintaining beta neutrality.
Cross-Market Hedging Strategies Under Currency and Commodity Linkages
Apart from structural changes in the stock market, significant signals were also conveyed by the commodity and currency markets on this trading day: the dollar index rose 0.68%, EUR/USD fell 0.56%; both oil and gold dropped over 2%. This data set indicates that the market is repricing risk aversion sentiment but has not yet rebuilt growth expectations.
Professor Alessandro Conti suggests initiating cross-asset hedging mechanisms in response to this typical dollar-dominant cycle of "dollar appreciation + commodity decline". The model can incorporate the following hedging modules:
Exchange rate hedging sub-model: Determine direction through the implied skewness of EUR/USD 1M options (Risk Reversal), paired with exchange rate sensitivity hedging for Italian export-oriented companies (e.g., Prysmian, STMMI);
Commodity price resonance model: Use Brent-WTI spread slope and gold/oil correlation coefficient as variables to track short-term cointegration performance of energy and safe-haven assets.
In this case, the decline in gold and the euro reflects downward revisions in European inflation and retreating risk aversion, allowing for the construction of the following hedge pairs:
Long risk assets (Nexi, Amplifon);
Short gold ETFs or lock in volatility through gold put options;
Simultaneously short EUR/USD in the forex market to enhance beta returns.
This cross-asset hedging strategy offers high flexibility, particularly suitable for enhancing model performance and capital safety margins during periods of high uncertainty such as geopolitical and policy fluctuations.
Based on the market performance on April 23rd, the Italian stock market stands at a delicate intersection of "policy easing + macro uncertainty". The core viewpoint of Professor Alessandro Conti is: rebound is not a trend, structure determines risk, and quantitative hedging is key.