John W Elite    Posts: 654 Joined: 10/11/2012 Location: Sydney, NSW, Australia  User Profile | I want to second the comment on rejiggering after an iterative build. I've often found that REMOVING strategies after you've built a portfolio makes a significant difference. My process is to build (say) 5 good strategies then TAKE OUT each of the 5 sequentially, record the portfolio performance difference, add the strategy back again, take out the next strategy, record, add it back and so on. Once this task is complete its often the case that one of the strategies materially deteriorates the performance the portfolio, and this strategy is removed for an immediate portfolio performance lift. This then makes way for (say) one or two more strategies that were discarded in the first build so that the final portfolio of 6 or 7 is superior to the original portfolio of six. The process I manually use is: 1. Decide how many strats to be built and the metric of choice for the initial portfolio (e.g 5) 2. Decide a cutoff level of significance for the metric to decide if a strategy from the first build should be removed e.g. portfolio CAR/MDD improves by 15%. 3. Decide how much any additional strategies to be added should increase portfolio performance (e.g. any additional strategy must increase portfolio performance by 10%) 4. Decide the max number of strategies allowed in the second build (e.g. 7) 5. Build the first portfolio (e.g.5) successively with each next best strategy 6. Take out the significantly worst performer (e.g. take out 1 to reduce portfolio to 4) 7. Rebuild by adding one or more that significantly improve the metric of choice (e.g. two more strategies each improved the portfolio CAR/MDD by 10%, portfolio is now finalised with 6 strategies) It takes time but it does result in the final portfolio having significantly improved performance compared to the initial portfolio. Many of these steps appear to be already in the process under discussion for automation, perhaps a final cut removal of the worst performer and addition of one or two better strategies could be considered. | |
