This article describes a Dual Momentum study over a multi-asset ETFs basket with a new attempt to improve this well-known investing style. Dual Momentum strategies rely on two different very simple filters: absolute momentum and relative momentum. Absolute momentum (rule 1) is a trend following filter used to switch any selected assets that have a negative excess return over the risk-free rate to cash while relative momentum (rule 2) criteria compares returns of a basket different assets through a ranking list to highlight those assets with the highest return. I considered a time window of three months in my backtest, as it has shown the strongest results. Rule 1: If the asset shows that the last three months return is […]Read more ›
Post Tagged with: "portfolio management"
Modern Portfolio Theory (MTP) has been derided by practitioners, academics, and the media over the past ten years because the dominant application of the theory, Strategic Asset Allocation, has delivered poor performance and high volatility since the millennial technology crash. Strategic Asset Allocation probably deserves the negative press it receives, but the mathematical identity described by Markowitz in his 1967 paper is axiomatic in the same way Pythagoras’ equations describe the properties of right triangles, or Schrodinger’s equations describe the positional probabilities of electrons. The math is the math. Bear with me! Modern Portfolio Theory requires three parameters to create optimal portfolios from two or more assets: Expected returns Expected volatility Expected correlation Strategic Asset Allocation applies MPT using long-term […]Read more ›
A reader recently emailed me, asking how he could hedge a “typical $500k mutual fund portfolio”. I’m going to walk through a step-by-step example of doing that in this post. Step One: Choose A Proxy Exchange-Traded Fund If you own a portfolio of stocks or stock funds, you can hedge that portfolio against market risk by buying optimal puts* on a suitable exchange-traded fund, or ETF. The first consideration is that the ETF will need to have options traded on it, but most of the most widely-traded ETFs do. The second consideration is that the ETF be invested in the same asset class as your portfolio. Let’s assume your portfolio consists primarily of blue chip U.S. stocks. An ETF you […]Read more ›
Testing the Ivy 10 Trading System Click To Tweet The Ivy Portfolio article posted several weeks back resulted in a lot of good discussions. The main thrust of many criticisms of the Ivy Portfolio came down to curve fitting. Was the Ivy Portfolio curve fitted to produce such great results? There was some question on the quality of the historical data provided by ETF Replay, but that will be beyond this article as I don’t have evidence that their data may be tainted. Besides, the curve fitting aspect is much more relevant to our main theme here at System Trader Success. Curve fitting can be a huge problem as there are many ways to curve fit a system. It can […]Read more ›
Several months ago I finished reading a very interesting book called, “The Ivy Portfolio.” This book was written by two money managers, Mebane Faber and Eric Richardson, who work at Cambria Investment Management. The authors wanted to answer the question of why money managers who manage some of the world’s best Ivy League schools produce such consistent results. Routinely Harvard and Yale endowments produce double digit annual returns. Since 1985 Yale University has returned around 16% annual returns and Harvard over 15% annual returns. Not only did they produce outstanding returns, but they did it by also reducing volatility and drawdown. Wouldn’t it be nice to mimic the investing strategy utilized by these endowments? Well, the authors do just that. […]Read more ›
By Georg Vrba, P.E. of Advisor Perspectives In an earlier article, Beyond the Ultimate Death Cross, I showed how an investment strategy for the stock market based on signals from a simple moving-average crossover system – the MAC-system – can produce significantly better returns than buy-and-hold. This system’s returns can be further improved by linking it to my bond market model. The Improved Investment and Asset Allocation Strategy My improved MAC-system works as follows, with a buy signal and a sell signal triggering shifts from investment in the stock market to the bond market, and vice versa. Buy signal for the S&P 500 A buy signal occurs when the 34-day exponential moving average (EMA) of the S&P 500 becomes greater than […]Read more ›