Baffling example of portfolio returns dominating any of its members - Psychology and Money Management | futures io social day trading
futures io futures trading


Baffling example of portfolio returns dominating any of its members
Updated: Views / Replies:593 / 7
Created: by rocktrader Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

Baffling example of portfolio returns dominating any of its members

  #1 (permalink)
Trading Apprentice
coimbatore, TN, India
 
Futures Experience: Intermediate
Platform: NOW, NEST
Favorite Futures: nifty futures
 
Posts: 27 since Mar 2014
Thanks: 23 given, 20 received

Baffling example of portfolio returns dominating any of its members

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


I was reading above table from this book, sample page

I am surprised to see that portfolio did well than any of its members.
The author clearly says that table is equally weighted assets i.e simply divide your money into 7 and buy 7 assets.

I am still baffled, after 40 years, the portfolio shows a positive return but most of portfolio members are in negative !?
I can see why portfolio can be positive if some of the assets were shorted but author seems to be long on all assets!

Am I missing something? How is this possible?
Perhaps author rebalanced the portfolio every month when rolling his futures contracts to next month in this 40 year period?

I wish author had a returns table for his portfolio along with 7 commodities, could some one help with a sample table (say 5 years with 3 assets) to understand this phenomenon?

Thanks,
RT


Last edited by rocktrader; May 18th, 2015 at 02:25 AM.
Reply With Quote
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Trading Apprentice
euroland
 
Futures Experience: Advanced
Platform: R
Favorite Futures: futures
 
Posts: 5 since May 2012
Thanks: 1 given, 3 received


I think it's the power of rebalancing

Reply With Quote
The following user says Thank You to bancor for this post:
 
  #4 (permalink)
 Vendor: www.probabletrades.com 
OC, California, USA
 
Futures Experience: Advanced
Platform: IB/TWS, NinjaTrader, thinkorswim
Favorite Futures: stocks, options, futures, VIX
 
shodson's Avatar
 
Posts: 1,860 since Jun 2009
Thanks: 480 given, 3,255 received

which book?

Reply With Quote
The following user says Thank You to shodson for this post:
 
  #5 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,388 since Jul 2012
Thanks: 1,139 given, 4,387 received
Forum Reputation: Legendary

Ask The Author

Rather than have all of us speculate, I'd recommend you contact the author.

Here is a link to Amazon author page, where you can start discussions. I'm sure he'll see it, and hopefully clear it up for you.

http://www.amazon.com/Aaron-Brown/e/B001JSCJ6A/ref=ntt_dp_epwbk_0

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
Reply With Quote
The following user says Thank You to kevinkdog for this post:
 
  #6 (permalink)
Trading Apprentice
coimbatore, TN, India
 
Futures Experience: Intermediate
Platform: NOW, NEST
Favorite Futures: nifty futures
 
Posts: 27 since Mar 2014
Thanks: 23 given, 20 received

I downloaded monthly returns for last 30 years of coco, wheat and silver from Index Mundi - Country Facts

Got my hands dirty and tried monthly rebalancing of silver:wheat:coco = 8:3:1

Using monthly returns for the period: Apr 1985 to Apr 2015

Portfolio returns: 186.7 %

Where as
Silver returns: 153.02 %
Wheat returns: 50.71 %
Coco returns: 28.00 %

My take away is:
With proper weights we can have a portfolio dominating any of its members.

In author's case it seems equally weighing the assets happened to work well and portfolio dominated the members. In the book he further goes on properly weighing the portfolio members and taking some short positions too, to further optimize the returns which are even better than the table I posted.

From the yearly returns of 30 years stats for silver, wheat coco respectively:
mean: 7.623 SD: 35.183
mean: 5.244 SD: 29.951
mean: 2.743 SD: 19.751

For portfolio:
mean: 5.522 SD: 23.978

SD (Standard Deviation) of portfolio is lesser than silver and wheat, providing the magic required to beat the individual top performers over time! This is inline with authors explanation of table I posted. Author goes further explaining how optimally risking from the point of view of Kelly investor mindset made this achievement possible.

I think I have grasped what author is saying (although his table has some gaps in my understanding, I have constructed another equivalent table to validate/understand his ideas!).

Thanks guys!


Last edited by rocktrader; May 21st, 2015 at 06:03 AM.
Reply With Quote
 
  #7 (permalink)
Elite Member
Singapore
 
Futures Experience: None
Platform: -
Favorite Futures: Diversified
 
Ming80's Avatar
 
Posts: 41 since Jan 2012
Thanks: 25 given, 49 received

hmm just curious, wouldn't 8:3:1 imply a leverage factor of 1.2?

i would have thought the idea behind was to show an outperformance of the best individual component using only rebalancing techniques not to be comingled with weighting schemes.



rocktrader View Post
I downloaded monthly returns for last 30 years of coco, wheat and silver from Index Mundi - Country Facts

Got my hands dirty and tried monthly rebalancing of silver:wheat:coco = 8:3:1

Using monthly returns for the period: Apr 1985 to Apr 2015

Portfolio returns: 186.7 %

Where as
Silver returns: 153.02 %
Wheat returns: 50.71 %
Coco returns: 28.00 %

My take away is:
With proper weights we can have a portfolio dominating any of its members.

In author's case it seems equally weighing the assets happened to work well and portfolio dominated the members. In the book he further goes on properly weighing the portfolio members and taking some short positions too, to further optimize the returns which are even better than the table I posted.

From the yearly returns of 30 years stats for silver, wheat coco respectively:
mean: 7.623 SD: 35.183
mean: 5.244 SD: 29.951
mean: 2.743 SD: 19.751

For portfolio:
mean: 5.522 SD: 23.978

SD (Standard Deviation) of portfolio is lesser than silver and wheat, providing the magic required to beat the individual top performers over time! This is inline with authors explanation of table I posted. Author goes further explaining how optimally risking from the point of view of Kelly investor mindset made this achievement possible.

I think I have grasped what author is saying (although his table has some gaps in my understanding, I have constructed another equivalent table to validate/understand his ideas!).

Thanks guys!


Reply With Quote
 
  #8 (permalink)
Trading Apprentice
coimbatore, TN, India
 
Futures Experience: Intermediate
Platform: NOW, NEST
Favorite Futures: nifty futures
 
Posts: 27 since Mar 2014
Thanks: 23 given, 20 received


Ming80 View Post
hmm just curious, wouldn't 8:3:1 imply a leverage factor of 1.2?

i would have thought the idea behind was to show an outperformance of the best individual component using only rebalancing techniques not to be comingled with weighting schemes.

To keep the calculations simple, I simply divided the money at start of month into 12 parts and allocated 8 parts to silver at that month's silver price and so on, it will not be proper lot size etc... but for self demonstration close enough is good enough. Yeah, you are right author shows portfolio outperforming by just rebalancing since there is no table of prices, I was just not able to see how this can work. If rebalancing can work with 8:3:1 well there is no surprise it can work 1:1:1 for some portfolios... that's my take away in a roundabout way.

Reply With Quote

Reply



futures io > > > Baffling example of portfolio returns dominating any of its members

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
returns indicator netfin NinjaTrader 1 August 23rd, 2014 02:22 PM
Trying to achieve 33% returns this year sunny051488 Beginners and Introductions 13 June 4th, 2014 01:13 PM
Old elite member Returns the platypus Tech Support 1 April 16th, 2014 02:41 PM
Difference between Members/Elite Members? robinlbird Traders Hideout 8 November 17th, 2012 05:03 PM
Mr. Schiff Returns to Washington Victory Trader News and Current Events 4 September 13th, 2012 11:08 PM


All times are GMT -4. The time now is 01:17 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-16 in 0.12 seconds with 19 queries on phoenix via your IP 54.91.38.173