Quants: More technical details, facts and discussion

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This topic contains 23 replies, has 11 voices, and was last updated by  Vangelis 1 year, 2 months ago.

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  • #38962

    Alexander Horn
    Keymaster

    Hi Petr,

    glad you liked the Seminar, we need to more of these – we enjoy them as well, but sometimes get lost with our long to-do list. So push us please!!

    1) Links to Seminar, these will be valid permanently:
    On our site:https://logical-invest.com/webinar-etf-rotation-momentum/
    Directly on Youtube: https://www.youtube.com/watch?v=d_YpwxuJkhc

    2) Generally all strategies and portfolios of strategies should be rebalanced monthly. Only if you trade Maximum Yield, then this should be rebalanced every two weeks. If you have a portfolio of different strategies, with one being Maximum Yield, then rebalance the Maximum Yield ETF every two weeks, but the overall portfolio only once a month.

    3) Same as I explain in 2). Best is to rebalance everything once a month, e.g. keep strategy ETF at their allocation %, and make sure the allocation between strategies is also close to the target. If you use the “Consolidated Signals” page, then everything is done in one step, just use the “Total Weighting” column, which is considering the allocations of ETF within Strategies as well as the weighting between strategies.

    For the QT process, the lookback period depends on the portfolio setup you´ve choosen. We´ve explained different settings here: https://logical-invest.com/forums/topic/showing-off-the-best-strategies-and-portfolios/#post-38652. If you want sent me your “QuantTrader.ini” files by emial, and I have a look at your specific portfolio – or we can do over Skype.

    Hope this clarifies,
    All the best,
    Alex

    #42221

    Hello,

    I am new to QuantTrader and wonder what would be the best general strategy to pick to put majority of money.
    Is it Strategy of strategies?

    Thanks,
    Branislav

    #42262

    Vangelis
    Keymaster

    Hello Branislav,
    We are not advisors and cannot give specific advice. That being said, a strategy of strategies helps diversify across assets AND strategies, so it would help limit losses arising from single ETF or strategy ‘failure’ events. As you become familiar with QT you can modify (make a copy first) the Strategy of strategies to fit your particular needs: You could for example limit max allocations to more aggressive strategies such as MYRS or change the attenuator to make the algo pick more conservative strategies. Our BRS and BUG strategies are often chosen by more conservative investors but you do have to consider the tax on ETF dividends that apply if you are European or non-U.S.
    Hope this somewhat helps.

    #51646

    urghan2
    Participant

    PS. What bothers me a bit is that in all those articles there’s a mantra: “Leveraged funds are not for long term investment”. And if I have MYRS and Nasdaq100 in my portfolio I will have constant, long term investment in TMF. Sometimes it’s bigger, sometimes it’s smaller, but nearly for all time there is some allocation to it (I have to check if there was any period of time in which both of those two strategies were not invested in TMF at all, I doubt it). And then we know that in the long term TMF is not performing better than TLT. So it’s more a painkiller for a portfolio (reduces short term volatility) than a cure. But that’s a bit different topic, I have discussed it before.

    [/quote]

    I’m not actually sure how this goes but was thinking the same. In case I buy a position of a leveraged fund and make a small rebalance every month, thus holding at least a part of the original position for quite a long time, at some point it should have negative impact on portfolio. How long is it ok to hold a leveraged fund? Should I rotate the whole position in and out of the portfolio at least once in 2-3 months? I assume we use first in first out, so for example if in january I buy 100 shares of ABC, in february I sell 30 shares of ABC (of the original position), and in march I buy again 30 shares of ABC, I assume that in the end I have 70 shares of original + 30 shares of new position = 100 shares total position of ABC. And those 70 shares that are from the original position, are decaying quickly.

    #51658

    Vangelis
    Keymaster

    Leveraged funds have decay and do not track the underlying at the quoted multiplier. TMF in the long run will not perform 3x the TLT. That just means that it may perform 2.3 or 1.5 times the underlying, depending on the path. When someone says it is not recommended to hold leveraged funds it is meant in the context of expecting to make 3x or 2x the underlying. This is not what we expect with TMF. We use it as a hedge. Best is to look at a graph between TLT and TMF.
    TLT vs TMF

    #51674

    Petr Trauške
    Participant

    Hello Alex,

    how can I set up limit max allocations to more aggressive strategies such as UIS 3x leveradged, MYRS in QT esspecially UIS 3x leveradged in this time to reduce risk ? I hope that invested in UIS 3x leveradege in this time is without any greater risk. I would reduce this UIS allocation in my portfolio to max. 20 % in QT.

    Thanks

    Petr

    #52146

    urghan2
    Participant

    Hi.

    Can you please open up a little bit of the concept of cross-correlation and how do you use it in your stock/ETF selection/exclusion? I’m not familiar with the concept.

    Thanks!

    #52149

    urghan2
    Participant

    [quote quote=51658]Leveraged funds have decay and do not track the underlying at the quoted multiplier. TMF in the long run will not perform 3x the TLT. That just means that it may perform 2.3 or 1.5 times the underlying, depending on the path. When someone says it is not recommended to hold leveraged funds it is meant in the context of expecting to make 3x or 2x the underlying. This is not what we expect with TMF. We use it as a hedge. Best is to look at a graph between TLT and TMF.
    TLT vs TMF

    [/quote]

    Hi.

    I read those two papers you mentioned above. Thanks! Still doesn’t quite get the idea of how gamma risk affects strategy performance when using monthly rebalancing and longer periods. Does it? Or does it even out itself? Maybe in the context of LI strategies?

    #52154

    Vangelis
    Keymaster

    In the context of LI strategies things are simpler. TLT is used as a hedge for many of our strategies (the most basic being the UIS strategy). What the hedge is supposed to do is to limit drawdown in a crisis. If you hold a portfolio that looses 50% of it’s value, you will have to gain 100% just to break even. So in long term investing, both empirically and quantitatively, it is of outmost importance to limit losses rather than to chase after high returns. The easiest way to limit losses is to hedge with an anti-correlated asset, such as Treasuries or Gold (and to of course diversify both in assets and strategies). So if the market fell by 50% in a period of few days, chances are that TLT (as a safe-heaven) would rise maybe 10, 20 or even 40%. Holding both would limit portfolio losses, which in the long run results in higher compound returns.
    TMF is used for the same purposes in our riskier strategies. It just “boosts” the hedge since 10% of portfolio in TMF is almost like buying 30% TLT. Whether TMF tracks exactly at 3x or 2.4X the TLT is of less importance. What is very important is that SPY and TLT, Equities and Treasuries, remain negatively correlated in the medium term so that a 2008 like crisis would result in Treasuries moving up and softening the blow.
    That said, if you were to trade UIS using SPY/TLT or SPXL/TMF or shorting SPXS/TMV it maybe better to short SPXS/TMV as you would gain a little extra return from the decay of both ETFs, although you would have to factor in borrowing costs. Hope this helps clarify.

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