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Multiple non-correlating strategies or portfolio
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Multiple non-correlating strategies or portfolio

  #1 (permalink)
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Multiple non-correlating strategies or portfolio

What do you guys think about concurrently running multiple automated strategies that have a very low or negative correlation?

If you measure the performance of each strategy individually, and pay no attention to the impact it has with/against the other strategies, but instead analyze the trades from a correlating standpoint (MultiCharts is good for this), I think there can be a lot of value added here.

If you have a basket of say five strategies the idea is you trade a few different markets (doesn't have to be 5, you can have more than one strategy per market for hedging) and each strategy has its own unique signals that are unlikely to signal the same entry type (long or short) on the same type of stock (ie: index, oil, currency), then I think the results can be far better than trying to selectively choose the perfect strategy for the perfect market and limit yourself to just one strategy per market, or even just one strategy in general.

I'm not very good at these things, it is a new concept for me, so I can only speak in general terms that have some common sense value. Anyone have specific experience trading non-correlating strategies and can offer up some pointers?

Mike

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  #2 (permalink)
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  #3 (permalink)
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I agree 100% and it is what I have been working on... a portfolio of strategies diversified over:

1. Trade time horizon (intraday, daily, weekly, monthly)
2. Trade type (momentum, mean reversion, market microstructure)
3. Asset type (equities, interest rates, commodities, currencies)

What will hurt when I go live with the idea is the capital requirements. With a small account you can "play" with the ES, CL, GC, ZN, or whatever rocks your boat. But when you look at holding (and rolling as required) futures contracts on a weekly or monthly basis the capital requirements go up exponentially (at least by my risk model). For that reason my weekly/monthly strategies are executed with ETFs (unleveraged) and not futures contracts right now. Pretty boring, actually. Throw a bit of Kelly in there I'll confide I'm 100% in weekly/monthly right now.... as none of my intraday or daily strats has a positive expectancy at the moment. So the Kelly bet is 0 for me now intraday.

Google "mean variance portfolio optimization". Markowitz is a name you will come across.

I'll dig through my PDF library and see what I have. With R and/or Matlab you can do some portfolio-level optimizations of the modeled backtest results of individual strategies. That would give you a theoretical weighting of the strategies in the portfolio from a risk/reward basis.

FWIW one thing I'm not that happy with in NT7 is that while I can backest a basket of strategies, you can't get a basket-level equity curve/Sharpe ratio/max drawdown etc etc. That would simplify my life considerably.

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Multiple non-correlating strategies or portfolio-evaluating_trend-following_commodity_index.pdf  

Last edited by MXASJ; April 1st, 2010 at 06:23 AM. Reason: Adds a PDF. Here is one where a portfolio of momentum ideas is examined.
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  #4 (permalink)
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I'm not good in this neither, but a good (the best in C2 imvho) automated strategy hosted by C2 ( VT26 - a futures trading system on Collective2 ) is using this idea: the same strategy with different parameters (I think...), and 6 different uncorrelated contracts.

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  #5 (permalink)
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Here is the PDF details for that system Sam mentioned. I'll read it in a few mins...

Mike

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  #6 (permalink)
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Wow great stuff in there... I will have to read this several times, but at first glance I am really liking the risk of ruin (ROR) separated into # of operations, and the monte carlo sim on the entire portfolio.

He also makes an interesting argument about using a daily penalty to account for slippage and commission, instead of a per-trade penalty. His argument is the latter produces an statistically incorrect equity curve, but I am not following his reasoning on that.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
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6)
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  #7 (permalink)
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No secret sauce in there... but the $100K suggested miminum just for this 7 instrument strategy is what I was talking about. A portfolio of say, five strategies, starts to add up!

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  #8 (permalink)
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MX,

So your saying that using Kelly you can't find a mathematically sound risk/reward for intraday trading, which is why you need larger time frames and therefore more capital due to the increased volatility of a multi-day trade?

I find that interesting. Wouldn't it mean that, in general, there is not enough diversification occurring on a daily basis to be profitable, and that you need multiple days in order for the markets to have moved far enough apart from each other for a profitable opportunity to occur? That in itself doesn't sound right to me, just looking at say CL vs ES vs 6E and their daily ATR and moves.

I'll read your PDF next MX. Hopefully there is minimal math

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
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  #9 (permalink)
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MXASJ View Post
No secret sauce in there... but the $100K suggested miminum just for this 7 instrument strategy is what I was talking about. A portfolio of say, five strategies, starts to add up!

Yes, and he says its not viable at less than 50k due to the inability to maintain the proper ratios.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #10 (permalink)
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Mike,
Thats exactly what I was saying in https://futures.io/platforms-indicators/2197-most-important-piece-trading-2.html.
I was even more bold and said that if you trade several setups, you will be better off even with a loosing setup. I wanted to prove this point, but got some stupid posts so I left it.
Thats why I'm against scaling. In the best scenario (both PT give positive outcome on their own) they have very strong correlation.

Baruch

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