How to use Statistical Arbitrage Capacity Calculator
Maximum strategy AUM derived from signal half-life, daily volume, slippage, fees, and target Sharpe. Closed-form square-root impact model — the answer to 'how big can this run' before alpha decay kills it.
What It Does
Use the calculator with intent
Maximum strategy AUM derived from signal half-life, daily volume, slippage, fees, and target Sharpe. Closed-form square-root impact model — the answer to 'how big can this run' before alpha decay kills it.
Strategy developers who already know the strategy works at $1M and need to know whether it works at $100M before pitching capital.
Interpreting Results
The headline AUM is the capacity at which expected costs equal expected alpha — beyond this point, more capital reduces returns. Real-world capacity is typically 50-70% of the model output to leave room for unmodeled costs.
Input Steps
Field by field
- 1
Enter inputs
Enter average daily traded volume of your strategy universe, signal half-life, expected per-trade slippage in bps, and current Sharpe.
- 2
Read outputs
Read the capacity-Sharpe curve as capital scales.
- 3
Identify
Identify the knee — where Sharpe degradation steepens. The knee is your practical capacity ceiling.
- 4
Compare results
Compare projected capacity at acceptable Sharpe levels (e.g., capacity at Sharpe 1.0 vs. at Sharpe 0.7).
- 5
Re-run
Re-run with stress assumptions (higher slippage, smaller universe). Capacity drops fast under stress — important for sizing institutional rollouts.
Common Scenarios
Use realistic starting points
Pair trade with short half-life
Half-life
3 days
Daily volume
$50M
Capacity sub-$10M; signal decay is fast, capacity reflects the realistic execution constraint.
Pair trade with longer half-life
Half-life
30 days
Daily volume
$500M
Capacity 5–10x larger; slower decay and deeper liquidity both help.
Try These Tools
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Pair Trading Cointegration Tester
Paste two price series. Engle-Granger cointegration test: OLS hedge ratio, Augmented Dickey-Fuller on residuals, Ornstein-Uhlenbeck half-life, z-score.
Cointegration Half-Life Solver
Engle-Granger residual ADF + Ornstein-Uhlenbeck half-life from any two price/return series. Hedge ratio, p-value, spread chart. Browser-only.
Execution Simulator
Model realistic order fills — square-root market impact, linear temporary impact, latency jitter, partial fills, and queue position. See the real cost.
FAQ
Questions people ask next
The short answers readers usually want after the first pass.
Related Content
Keep the topic connected
Slippage
Slippage as the gap between expected and executed price: the components (spread, market impact, latency), and how to model each in a backtest.
Sharpe Ratio
Sharpe ratio defined, when it lies (skew, fat tails, autocorrelation), and how to read a Sharpe number you didn't compute yourself.
Bid-Ask Spread
Bid-ask spread defined: quoted vs effective vs realized spread, why the touch isn't the cost you actually pay, and how to measure each.