The D-Score is the metric we use at Darwinex to risk our own capital
1. What is the D-Score
The D-Score is the proprietary metric Darwinex uses to risk its own capital.
- via the DarwinIA Capital Allocation (a programme to train providers to operate a strategy that has third party AuM), and
- via the proprietary portfolio of DARWINs in which we invest our own capital.
So, the D-Score will be relevant for those providers who pursue Darwinex AuM.
2. The origins of the D-Score
The D-Score was born in 2013, long before the launch of our talent and capital Exchange, much earlier than the DARWIN asset class itself.
In the early years it was based on a combination of Investable Attribute scores. But the diversity of factors that influenced it (attributes, weights, history, assets) had brought it to a point of no evolution.
After performing numerous analyses with data of thousands of DARWINs, we came to the conclusion that using only DARWIN quote data we could distill a more predictive D-Score than the previous one.
In 2020, the D-Score calculation became much simpler, using only Quote data with zero dependence on Investment Attributes / Scores.
3. Our approach to the D-Score
Our research with the D-Score has led us to the following conclusions.
- A DARWIN’s Quote (price) can be used to determine its ability to generate future returns.
- Investment attributes provide information on how strategies achieve their returns. This is useful, e.g. for describing the behaviour of a strategy without the need for traders to describe it themselves.
- The best strategy to invest in DARWIN assets is to invest in those that in the medium term (2-3 years onwards) have been able to generate returns, and currently have a positive momentum.
- DARWINs that stop performing change the ''shape'' of their upward curve. In trading jargon, the breaking of a trendline is usually an indicator of strategy exhaustion.
Points 3 and 4 are what we have attempted to summarize in a single metric, the D-Score, and the results are promising.
4. Presence of the D-Score in other platform features
Accounts without DARWINs
As the DARWIN quote is not available for accounts without associated DARWINs, D-Score calculation will be simpler. There may however be discrepancies between the D-Score value of an account without a DARWIN and of the value that same account has with DARWIN. Its calculation frequency will also be lower than for accounts with associated DARWINs.
Some predefined filters use the D-Score in their filter criteria.
Commission rebates for traders are linked to the D-Score.
- A D-Score of 55 is required to get a 20% discount
- A D-Score of 60 is required to get a 40% discount
The D-Score is not a recommendation to invest in DARWINs nor a guarantee of future profitability.
6. “D-Score” podcast mini-series w/ Javier Colón & Ali Saif
1) History of the D-Score up to 2020
In this first episode, Javier Colón talks about the history of Darwinex and all its Diagnostic Algorithms.
Javier takes listeners back in time to the origins of the D-Score and Darwinex itself, highlighting everything that has contributed to their evolution to this.
He sheds light on the need for Darwinex's Investment Attributes to begin with, what purposes they were intended to serve, and how the D-Score came about in its first form.
2) What has Darwinex learned as the D-Score has evolved
In episode 2, Javier Colón shares what Darwinex has learned through time and over various iterations of the D-Score that have lead to its current state as deployed on the Investor Platform.
He sheds light on the problems with the current D-Score, and how over time it became increasingly difficult to iteratively improve upon it due to its depedencies on Darwinex Investment Attributes.
3) How is the D-Score calculated?
In episode 3, Javier Colón shares considerations, logic and specific details around the calculation of the new D-Score.
4) Is there a best way to invest in DARWINs?
In episode 4, Javier Colón shares his experiences with DARWIN portfolio creation, his considerations, investment criteria etc.
He states that these findings are in no way the ONLY ways to construct DARWIN portfolios, and encourages the audience and the wider community to leverage the DARWIN API to improve upon the New D-Score, create their own if they so wish!
5) Impact of the D-Score on Investment Attributes
In episode 5, Javier Colón sheds light on where the new D-Score leaves existing Investment Attributes at Darwinex.
Specifically, he sheds light on the Performance attribute's future, given the correlation to the new D-Score as a result of the latter's formulation via a DARWIN's Quote.
6) Impact of the D-Score on Darwinia & Rebates
In this final episode, Javier Colón explains the impact of the new D-Score on key Darwinex assets such as the Darwinia competition and Rebates.
He also explains how Darwinex makes proprietary capital allocation decisions, what factors influence the same, and the challenges Darwinex faces in deploying company capital vs those faced by individual investors.