Aggressive Hedge Using SH

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  • #77601
    Mark Vincent
    Participant

    I was looking for a more aggressive Hedge when SPY is not doing well. I added SH to the current HEDGE strategy and ran it with the UIS SPY-hedged and observed the following:
    – Performance over 20 years is better especially during 2008.
    – Performance over the last 5 and 10 years is marginally worse
    – Performance last year was better but I used 70% Max allocation and not 60%
    – When Stocks, Bonds and Gold are all declining SH will be allocated as the Hedge.
    – SH is not used often since most of the time Bonds and Gold are outperforming it.

    In Summary it might be worth deploying this as an extra precaution as the Bull market continues unfortunately there is no free lunch and performance will suffer. To compensate for the lack of performance I increased the maximum allocation to 70% from the current 60%.

    Comments are always welcome. If anyone wants the .ini files I can post them.

    Cheers,
    Mark Vincent

    #77603

    Interesting! I would be glad if you can share the ini files.
    Regards Frank

    #77604
    Mark Vincent
    Participant

    Here is the Hedge With SH added:

    [StrategyTitle]
    Hedge SH
    [StockItems]
    #GLD-USD=#GLD-USD,2,1,1,0.00
    #Treasury hedge=#Treasury hedge,2,1,1,0.00
    GLD=Gold,2,1,1
    SH=,2,1,1,0.00,,0,0
    SPY=SPDR S&P 500 Index,2,1,1
    TLT=Barclays long term treasury (10 years),2,2,1
    [StockSets]
    StockSet43=Hedge SH,1,3,StockSetStrategy43,2020-02-04,2020-02-06,#[email protected],#Treasury [email protected],[email protected],[email protected],[email protected],[email protected]
    [StockSetItems]
    StockSet43Item1=111111,StockSet43Item2,0,00000004,2,
    StockSet43Item2=110100,StockSet43Item3,1,00000008,2,
    StockSet43Item3=000001,StockSet43Item4,2,00000010,3
    StockSet43Item4=000010,StockSet43Item5,2,00000020,3
    StockSet43Item5=-,-,2,00001000,3,
    [StockSetStrategies]
    StockSetStrategy43=2,2,used only a sub strategy,110100,10,,1
    [StockSetStrategyParameters]
    StockSetStrategy43=-3,3,92,3,-2,7,-2,7,-6,7,-1,7,0.00,0,0.00,0,0,0,0.00,0,0.00,0,0.00,1,0,0,0,0,0,0,0,0,0.00,4,0.00,4,0,0,0,4,0,4,0.00,0,0.00,0,0.00,0

    Here is UIS SPY with the Hedge and SH:

    [StrategyTitle]
    Hedge SH
    [StockItems]
    #GLD-USD=#GLD-USD,2,1,1,0.00
    #Treasury hedge=#Treasury hedge,2,1,1,0.00
    GLD=Gold,2,1,1
    SH=,2,1,1,0.00,,0,0
    SPY=SPDR S&P 500 Index,2,1,1
    TLT=Barclays long term treasury (10 years),2,2,1
    [StockSets]
    StockSet43=Hedge SH,1,3,StockSetStrategy43,2020-02-04,2020-02-06,#[email protected],#Treasury [email protected],[email protected],[email protected],[email protected],[email protected]
    [StockSetItems]
    StockSet43Item1=111111,StockSet43Item2,0,00000004,2,
    StockSet43Item2=110100,StockSet43Item3,1,00000008,2,
    StockSet43Item3=000001,StockSet43Item4,2,00000010,3
    StockSet43Item4=000010,StockSet43Item5,2,00000020,3
    StockSet43Item5=-,-,2,00001000,3,
    [StockSetStrategies]
    StockSetStrategy43=2,2,used only a sub strategy,110100,10,,1
    [StockSetStrategyParameters]
    StockSetStrategy43=-3,3,92,3,-2,7,-2,7,-6,7,-1,7,0.00,0,0.00,0,0,0,0.00,0,0.00,0,0.00,1,0,0,0,0,0,0,0,0,0.00,4,0.00,4,0,0,0,4,0,4,0.00,0,0.00,0,0.00,0

    #77605
    Mark Vincent
    Participant

    I just realized when SH is on you would not be in SPY you would subtract the difference and use what ever is greater, the rest in cash. Not sure if that would make a difference.

    #77617

    The problem with this kind of hedge is that it really only worked in 2008 when we had a very long market correction. With all other corrections you always lose money as you are always to late installing this hedge and you end up holding it in the fast recovery’s after these corrections. In general it is nearly impossible to make a profit shorting the market unless you really time it precisely. You just have the market working against you.
    I think that it is probably better to protect your portfolio by buying put options when volatility is low (<11) and when these are cheap.

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