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Steve Mayo

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Subject : RE: Ideas for Portfolio Wiz/Bal Iterative Process
Posted : 4/10/2014 10:19 PM
Post #29732 - In reply to #29724

That's an interesting and creative idea, Jim, worth considering for a future version.

I think, however, it would add a significant level of complexity beyond what you are describing. Let me try to explain.

First, a quick primer. The first step for the port switcher is to build a large table with ports on the y-axis and period-ending dates on the x-axis. If you are switching weekly and testing over 14 years, the table will have 728 columns and, lets say, 50 ports in the list for a total of 36,400 cells, each holding the result from a "scoring" function, say a 7-period RSI. Then, you rank-order the scores in each column and use the "winning" port for the forward month as you stitch-together the switched equity curve using the daily return data. Simple enough, until you start asking the obvious questions: is RSI or MACD best? Should it be a 7-day or 14-day RSI? Is it better to limit the switching to some subset of the ports? You add another 36K calculations for each permutation of those questions and your data "cube" gets very large.

Yes, reducing the number of columns is desirable and your idea has merit if, say, OV-Pro could default to monthly columns and then only dropback to weekly during a bear market. But that presumes that each of the 50 portfolios reacts to the market mode in a similar fashion. That may be an incorrect presumption.

In the accompanying graph (careful, don't compare ending equity as they do not have the same starting equity), notice the difference in slope and volatility in my TPM and Nirvana's ARM4 port from Nirvana's Bearish/Bullish pair on any particular month, and how both are quite different from the market.

Thus, I think we only end up with another question (albeit a good one), what's the best periodicity to use for each port-set with a given indicator and its settings? To answer that would require yet another dimension in our data cube.

I think we can accomplish something akin to what you are asking by treating the market's equity curve as another indicator. With that we could do something like linreg(Return("equity") - Return("QQQ-200%") to measure each portfolio RELATIVE to the market. Ed has said he would look into adding that to the available formulas.



EDIT: Hmm, now that I see it posted, that QQQ line doesn't look right; it might be monthly data instead of daily like the others. I'll check and repost soon...but hopefully you get my concern.

[Edited by Steve Mayo on 4/10/2014 10:37 PM]

Attached file : 2008.png (115KB - 755 downloads)

Deleting message 29732 : RE: Ideas for Portfolio Wiz/Bal Iterative Process


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