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Yes, I am picking high beta names and hence one of the key component of my strategy is a strong stop loss descipline.
I am studying market neutral strategy but what I am trying to do is instead of futures, I want to see if by combining a few non correlated strategies, I can more or less eliminate long periods of underperformance and also some whipsaws.
The goal is to have more or less a pure alpha strategy or a strategy that generates 5% annual excess return with about 1.5 Sharpe ratio. Currently, the combination of my strategies is generating about 3% excess return a month with a Sharpe ratio of close to 2.00.
I think one of the main reasons why methodical investing hasn't gained traction in the asset management business is because fund managers have to produce alpha every quarter and with methodical investing, you could have months if not years of underperformance.
The problem with my current combination is that they are all strongly correlated. They pick high beta, relative strength and momentum names. Recently, I added one non correlated strategy and have increased my shorts in other two. That has brought down the volatility. I am wondering if anyone has come across other approaches?
Thanks again,
Rajiv
On Thu, Apr 30, 2009 at 9:35 AM, dasein_10 <daniele_delmonte@xxxxxxxxxxx> wrote:
Just an idea:
If your strategy is inversely correlated with VIX, probably It means that you are picking just high beta stock.
In fact, VIX and SP500 are highly inversely correlated (from 1998 is -0.75) so your strategy probably are also veri inv. correlated with market, so your stocks/strategy must have high beta.
You are studing market neutral strategy?with futures hedging perhaps?
Analyse the beta of your strategy can help you: to isolate the alpha and to understand if and how you can produce alpha
Maybe you can try to immune your portfolio with "beta"-hedging to isolate alpha.
I want to add just one thing: the big increase of volatility happen often at the start of a bear market, just he moment that the trend follower / Momentum strategy underperform, so I can think in general that momentum strategy are affected by the volatility jump.
--- In equismetastock@xxxxxxxxxxxxxxx, Rajiv Vyas <rajiv1@xxx> wrote:
>
> Most of the systems that I use currently are inversely correlated with VIX
> -- if vix goes down, my systems do much better then the benchmark on that
> day -- sometimes a combination of 10 systems give an excess return of more
> than 1%. When the VIX goes up, the systems in aggregate underperform.
> My experience tells me that most systems (at least those in the public
> domain) and TA in general, are inversely correlated to volatility i.e. they
> outperform the bench when volatility goes down.
>
> So, my question is: Has anyone come across a broader philosophy, or a
> strategy or systems that outperforms when the VIX is increasing.
>
> Thanks,
>
> --
> Rajiv
>
-- Rajiv
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