Selecting the top N highest ranked tickers works as expected and desribed in the tutorial. As a further step, how can I set up a short portfolio though? I’d like to short the M weakest tickers in a list.
I can select “short” but it appears to be shorting the strongest tickers which is a bit counter-intuitive.
You can use the parameters “Mean reversion weight” and “Mean reversion period %” to invert the performance of the stocks. Set “Mean reversion period %” to 100% so that it uses the full lookback period and now you put the “Mean reversion weight” to -200% which means that it substracts 2x the performance from the performance.
This way +2% will be +2% – 4% = -2% and -2% + 4% = +2%. This way the worst stock will be on top and you can do a normal ranking and buy or short these bad stocks. I am not sure however that it works well as these stocks could do big upward jumps because of mean reversion.
Hi Frank, I wanted to check, does the “Mean reversion weight” apply to the returns only, or is it taken into consideration as well when calculating the volatility?
It only applies to the returns. Volatility stays the same. To inverse sort order insert -200 Mean reversion weight (100-200=-100) and 100% Mean reversion period