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Most effective way to hedge
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Most effective way to hedge

  #1 (permalink)
Elite Member
Budapest, Hungary
 
Futures Experience: Advanced
Platform: Windows 95
Favorite Futures: GC, CL, 6E
 
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Posts: 278 since Feb 2013
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Most effective way to hedge

Hi guys, I need your opinion on this!

What is the best way to hedge QQQ / TQQQ ?

What do you think of rebalancing with TLT?

Are there any short biased (actively managed) short ETFs?

Do you just look for bad news and call your shorts accordingly?


Thanks for the imput, cheers!

Yuri

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  #3 (permalink)
Elite Member
Budapest, Hungary
 
Futures Experience: Advanced
Platform: Windows 95
Favorite Futures: GC, CL, 6E
 
Yuri57's Avatar
 
Posts: 278 since Feb 2013
Thanks: 71 given, 103 received



Yuri57 View Post
Hi guys, I need your opinion on this!

What is the best way to hedge QQQ / TQQQ ?

What do you think of rebalancing with TLT?

Are there any short biased (actively managed) short ETFs?

Do you just look for bad news and call your shorts accordingly?


Thanks for the imput, cheers!

Yuri


Ok, I have found a site where you can backtest: Backtest ETF Portfolio
After some research, I can say that there are not many stocks/ETFs which are not or negativly correlated with the broad market. Among stocksI found only a few gold-mining stocks with negativ beta; however TLT has a beta of -0,78 which makes it excillent for hedging.

So if you bought 75% TLT and 25% TQQQ you had about the same volatility as the SP500 but a ton more return. 28% CAGR to be precise. Not bad, not bad at all!

So as it turns out the past 5 years on of the simpliest strategies worked best, you just had to believe that QE WILL support the bond market, which due to falling yields WILL support the stocks market.... and basically you had to do nothing for a 28% return / year

On the picture the volatility seems to get higher but please notice that the graph is NOT on a logarithmic scale, so partly it is a distortion. But yeah, since the QE has ended and rates will rise soon eventually, the hedge will probably fall apart.

There are 2 things to take away from this: to outperform the market you don't HAVE TO pick stocks, NASDAQ-100 is a good enough investment on it's own. Tech companies will always be at the bleeding edge of innovation which gives them a huge competitive advantage. Secondly QQQ is already well diversified so you won't have to worry about that either. After that you can actually apply leverage even without a margin account (through leveraged ETFs) AND to reduce you volatility you should buy bonds (TLT) which is the safest investment with loose monetary policy.

As an extra notice I want to add, that if you took a look at inflation measures and what the central banks were willing to take to fight of deflation you could come to the conclusion that buying german bonds (BUNDs or FGBL) were even a better bet. It was a trend to leverage into with futures and make a fortune.

Hope you found my insight interesting and I'm looking forward to hearing of your long-term fundamental strategies for the next market cycle.

Peace out!

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  #4 (permalink)
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Futures Experience: Intermediate
Platform: ProRealTime
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Interesting! But you forgot to include the years before 2010! Especially 2008

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