Steve Mayo Legend  Posts: 414 Joined: 10/11/2012 Location: Austin, TX  User Profile | Mark and I should point out that the example above uses a more sophisticated ranking process than what I had suggested to Ed in the survey, that being the ability to rank and switch between portfolios (and ideally strategies too) based on a simple indicator measured on their equity curves. Therefore, here's a second, less sophisticated, example along those lines. It switches 7 times between a pair of portfolios to use the portfolio for the forthcoming month that had the higher monthly return in the preceding month. Just this relatively easy approach increases the modified-Sharpe to 8.5, about 20% better than ARM4 Margin over the same period. This simple technique could theoretically be done today by any of us simply by running OV simulations each month to rank the monthly return. But, be aware, as Jim points out, that this Excel simulation does assume completely closing all open trades in the first portfolio and buying all open trades in the second portfolio on those 7 month-ends where a switch occurs (and it doesn't include the added commission costs for doing so). Unless you were to close all positions manually, OV would normally stay in the open trades from the prior portfolio until each position reached its sell point. Without Nirvana adding functionality to OV, we can't know what impact those carry-over trades might have. Given the short duration of the RTM trades, it would logically be better to NOT enter those positions mid-trade just because the calendar cliked off a new month. I THINK the results would be better than this simulation, but currently there is no way to know for sure. Also, our simulation is based on the mark-to-market data from the OV graphs, which is the equity sum of the positions at the end of the day; conversely OV makes its trades at the open. Our simulation assumes you could sell-out/buy-back-in at the market closing price at month-end. Given OV doesn't tell you what it intends to buy tomorrow until well after market close, you obviously cannot actually do that. The simulation assume you would buy the next month's positions as of market close, even if they were going to be closed out in the morning. In reality, you would close out at EOD and then buy back in the next morning at MOO but that's an overnight slippage that is then also not included in this simulation. Bottom line, it certainly looks like there is good potential here to improve upon the OV returns but unless/until Nirvana can add the ability to rank-order ports (and hopefully strats too) based on an indicator, and then to trade in/out and between those ports/strats based on that ranking, we won't be able to properly validate that potential. [Edited by Steve Mayo on 3/18/2014 3:13 PM]  Attached file : PastedGraphic-26.png (47KB - 1364 downloads) |
