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The long-only and the 130:30 low-volatility portfolios recommended for this week, with their corresponding weights, can be found in this file:US_weights_20120402.csv

Regarding the performance, over the last year (52 weeks), the long-only strategy attained a volatility of 11.1% (versus 21.2% of the S&P 500). The volatility of the 130:30 strategy is even better: 9.6%.

The weekly 95%-VaR of the long-only portfolio was 2.1% (versus 4.7% of the S&P 500). The corresponding VaR for the 130:30 portfolio was 1.8%.

The last year annualized Sharpe ratio of the long-only strategy was 1.17 (after proportional transaction costs of 40 bps were discounted). On the other hand, the SR of the 130:30 strategy was 1.60. Finally, the SR of the S&P 500 was 0.43 over the same period.

In the next figure, you can see the compounded return over the last 52 weeks of the three considered portfolios.

Both low-volatility portfolios attain better returns than those of the S&P 500.

But let add information about the risk. The next graph shows the risk-return space for the three considered portfolios.

The red point represents the mean return and volatility of the long-only portfolio over the past 52 weeks. On the other hand, the green point represents the 130:30 portfolio, and finally the blue point represents the S&P 500 index over the same 52 past weeks.

We can see the two low-volatility portfolios have better mean returns than that of the S&P 500, and also their volatilities are better. In this case, we say the low-vol portfolios dominate the index.

I have computed the same risk-return space for every week over the last year, using the same 52-weeks historical method to estimate the mean returns and the volatilities. The long-only and 130:30 portfolios attained a higher return than that of the S&P 500 (100% and 96% of the time, respectively). Moreover, the volatility of both low-vol portfolios was always less than that of the S&P 500.

As a summary, the low-volatility strategies dominate the market index most of the time, showing they attain consistently better risk-adjusted returns.

Impact-adjusted valuation and the criticality of leverage

The practice of valuation by marking-to-market with current trading prices is seriously flawed. Under leverage the problem is particularly dramatic: due to the concave form of market impact, selling always initially causes the expected leverage to increase. There is a critical leverage above which it is impossible to exit a portfolio without leverage going to infinity and bankruptcy becoming likely. Standard risk-management methods give no warning of this problem, which easily occurs for aggressively leveraged positions in illiquid markets. We propose an alternative accounting procedure based on the estimated market impact of liquidation that removes the illusion of profit. This should curb the leverage cycle and contribute to an enhanced stability of financial markets.

Link al Paper

The long-only and the 130:30 low-volatility portfolios recommended for this week, with their corresponding weights, can be found in this file:US_weights_20120305.csv

Regarding the performance, over the last year (52 weeks), the long-only strategy attained a volatility of 11.3% (versus 21.3% of the S&P 500). The volatility of the 130:30 strategy is even better: 9.5%.

The weekly 95%-VaR of the long-only portfolio was 2.1% (versus 4.7% of the S&P 500). The corresponding VaR for the 130:30 portfolio was 1.7%.

The last year annualized Sharpe ratio of the long-only strategy was 1.06 (after proportional transaction costs of 40 bps were discounted). On the other hand, the SR of the 130:30 strategy was 1.67. Finally, the SR of the S&P 500 was 0.27 over the same period.

In the next figure, you can see the compounded return over the last 52 weeks of the three considered portfolios.

Both low-volatility portfolios attain better returns than those of the S&P 500.

But let add information about the risk. The next graph shows the risk-return space for the three considered portfolios.

The red point represents the mean return and volatility of the long-only portfolio over the past 52 weeks. On the other hand, the green point represents the 130:30 portfolio, and finally the blue point represents the S&P 500 index over the same 52 past weeks.

We can see the two low-volatility portfolios have better mean returns than that of the S&P 500, and also their volatilities are better. In this case, we say the low-vol portfolios dominate the index.

I have computed the same risk-return space for every week over the last year, using the same 52-weeks historical method to estimate the mean returns and the volatilities. The long-only and 130:30 portfolios attained a higher return than that of the S&P 500 (100% and 96% of the time, respectively). Moreover, the volatility of both low-vol portfolios wasalways less than that of the S&P 500.

As a summary, the low-volatility strategies dominate the market index most of the time, showing they attain consistently better risk-adjusted returns.

The long-only and the 130:30 low-volatility portfolios recommended for this week, with their corresponding weights, can be found in this file:US_weights_20120206.csv

Regarding the performance, over the last year (52 weeks), the long-only strategy attained a volatility of 11.3% (versus 21.6% of the S&P 500). The volatility of the 130:30 strategy is even better: 9.5%.

The weekly 95%-VaR of the long-only portfolio was 2.2% (versus 4.7% of the S&P 500). The corresponding VaR for the 130:30 portfolio was 1.9%.

The last year annualized Sharpe ratio of the long-only strategy was 1.39 (after proportional transaction costs of 40 bps were discounted). On the other hand, the SR of the 130:30 strategy was 1.59. Finally, the SR of the S&P 500 was 0.34 over the same period.

In the next figure, you can see the compounded return over the last 52 weeks of the three considered portfolios.

Both low-volatility portfolios attain better returns than those of the S&P 500.

But let add information about the risk. The next graph shows the risk-return space for the three considered portfolios.

The red point represents the mean return and volatility of the long-only portfolio over the past 52 weeks. On the other hand, the green point represents the 130:30 portfolio, and finally the blue point represents the S&P 500 index over the same 52 past weeks.

We can see the two low-volatility portfolios have better mean returns than that of the S&P 500, and also their volatilities are better. In this case, we say the low-vol portfolios dominate the index.

I have computed the same risk-return space for every week over the last year, using the same 52-weeks historical method to estimate the mean returns and the volatilities. The long-only and 130:30 portfolios attained a higher return than that of the S&P 500 (100% and 88% of the time, respectively). Moreover, the volatility of both low-vol portfolios was always less than that of the S&P 500.

As a summary, the low-volatility strategies dominate the market index most of the time, showing they attain consistently better risk-adjusted returns.

En este capítulo, Leandro -vía Skype desde NY- le explica a Gaston qué es el Alfa, cómo es la generación del mismo, qué diferencias existen entre un trader tradicional y un trader de Alta Frecuencia.

Siempre Mejor en HD

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