Investing - Theory, News & General • Hydromod's Okay Adventure: Leverage, Momentum, and Risk Management

Just caught up on this post about your rebalancing analysis. Interesting. The “luck” of rebalancing quarterly in an HFEA posts has been talked about before. To me it seems that anything longer than monthly (or better 2x a month minimum) and there is going to be a decent amount of timing luck, depending on how volatile the asset and portfolios are. I have decided to do two different “tranches” and rebalance each on a monthly basis, so effectively rebalancing 50% of the portfolio every two weeks depending on momentum and vol.

have you added any other strategies to compliment your current construct? Looking at it, this type of strategy might go well with a tail hedge allocation (CAOS, CYA, TAIL). Or something that is essentially the inverse of momentum high vol (BTAL) or a value tilted buy and hold strategy. Or perhaps a combination sleeve of the above with other traditional alts and hedges(gold, long vix products, OTM puts).

I did a little bit of analysis after the last rebalancing post. I (i) aligned the sequence starting in 2007 with February 15 and with March 30, (ii) calculated the volatility and correlations based on the daily, weekly, monthly, etc. for these sequences, (iii) generated sets of normally distributed realizations obeying the stats, and (iv) calculated the rebalancing effect for each assuming no net returns for each asset. Half a quarter difference only for the stats. The daily rebalance had essentially identical histories for the February and March stats, but not so much for the rest of the sequences. The monthly and quarterly definitely had better rebalancing returns with the March stats.

It looks like the end of the month/quarter stats show a bit higher asset volatility and the equities were less positively/more negatively correlated with the bonds and alternatives, which generates more favorable rebalances. I have no idea if that is a fluke or consistent over time.

I was surprised to see that the annual and multi-year rebalance stride tended to have increasingly large rebalance bonuses (presuming I'm doing it right). I haven't had a chance to delve further.

The tranch idea is a good one.

I tried plugging BTAL in. It doesn't seem to have enough volatility to balance 3x LETFs. I think it would be useful on a less-levered portfolio.

I tried plugging in some of the vix products. I didn't really get much promising, but I have not done enough testing to eliminate them.

Beyond that, I haven't looked at the other approaches. I've very recently started considering multi-strategy approaches with low correlation between the strategies, but haven't had a chance to code much up yet.

Statistics: Posted by Football2408 — Sun Dec 10, 2023 10:40 pm — Replies 53 — Views 9220