Hedging % allocation

[James – East of the Suez]

Hi guys,

How does the model foe the US market strategy determine the weighting (60 or 40%) for the hedge component?

Best James

[Frank1 Grossmann]

It looks what has been the best allocation with the highest Sharpe value during the last 48 trading days. This allocation will be used for the next month. As equity volatility or risk is still high, the hedge will have a higher allocation than equity.

[James – East of the Suez]

Thanks Frank. Understood

[Shoupbs]

Please explain why GLD was not used this month as a Hedge? GSY?
I decided to maintain a large Gold and Silver position regardless.
I’m using a Core Portfolio Strategy.
Thanks.

[James – East of the Suez]

Indee, an unfortunate month to not be long GLD!

[Frank1 Grossmann]

The gold hedge uses a 3 month lookback period. The first 2 months of this period was an up and down and only in June it recovered nearly 6%. After such a performance some profit taking (=mean reversion) is normally the case and as there is a mean reversion rule in this strategy it locked in profits for a month going to GSY.
This rule has a high probability to succeed but I agree, this month staying invested in Gold would have been better.

[Author]

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