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At 2:24 PM -0400 5/6/98, Steve McGuire wrote:
>Nova can't do 150% of the S&P on a daily basis because you would then be
>compounding at a daily rate of 150% of the S&P. Nova's objective is to give
>150% of the S&P over time, not on a daily basis.
Actually, the ratio I used should be 1.5 each day to achieve the 150% beta
objective. In fact, over eight years, the average of the ratio has been
1.4987 so they achieved the objective overall.
But the issue is what happens on a day-to-day basis if you are trading
every day. This varies quite substantially as the plot showed.
In addition, the following simple system shows that the errors are biased
against day-to-day switches:
Apply the following system to both the S&Pcash index and the Nova fund:
if Close > Close[1] then buy 100,000/Close shares on close;
if Close < Close[1] then exitlong on close;
The profits using the Nova Fund, with its 150% beta, should backtest much
higher than with the S&Pcash. However, since 9/29/93 the profit on Rydex
Nova would have been LESS than with S&Pcash:
Nova S&Pcash
Net Profit 72,336 73,499
Gross Profit 216,249 144,643
Gross Loss -143,912 -71,144
Percent Profitable 44% 50%
Max Drawdown -16,985 -7,598
Return on Account 426% 967%
Bob Fulks
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