Have you ever run this program with slightly more retail friendly parameters such as no shorting or a minimum level of S&P exposure? I would be very curious to see how different it might look. Also, what is your opinion of TIPs for bond exposure? Thanks for everything!
Forgot to answer the TIPS part! TIPS are probably a better diversifier to equities than nominal bonds. The problem is they just don’t have good ways to leverage them, which makes them a drag on total returns in an already low-vol Portoflio
It can be done for sure, but both of those steps reduce expected performance. Doing those two things might bring sharpe ratios down from 1 to somewhere around 0.8 ish. Basically:
1. Making sure your never *net short* is not a huge deal.
2. Removing the shorts altogether reduces performance significanlty
3. Always maintaining equity exposure reduces alpha a lot. Returns are still good , but not any different from owning beta
There’s not some huge short-side alpha in the program, but the effective net sizing down is pretty important for it to work well
We estimate the expected volatility for current set of positions, and then shock the positions multiple standard deviations to come up with a worst case scenario. We then. scale to make sure that worst case scenario is not outside our maximum acceptable drawdown. That way we have a good idea of the worst-case outcome in a pre-defined way
Can you elaborate a little on the risk Control. Are you forecasting future volatility or scaling based on observed realized volatility or something else? Thanks.
Have you ever run this program with slightly more retail friendly parameters such as no shorting or a minimum level of S&P exposure? I would be very curious to see how different it might look. Also, what is your opinion of TIPs for bond exposure? Thanks for everything!
Forgot to answer the TIPS part! TIPS are probably a better diversifier to equities than nominal bonds. The problem is they just don’t have good ways to leverage them, which makes them a drag on total returns in an already low-vol Portoflio
It can be done for sure, but both of those steps reduce expected performance. Doing those two things might bring sharpe ratios down from 1 to somewhere around 0.8 ish. Basically:
1. Making sure your never *net short* is not a huge deal.
2. Removing the shorts altogether reduces performance significanlty
3. Always maintaining equity exposure reduces alpha a lot. Returns are still good , but not any different from owning beta
There’s not some huge short-side alpha in the program, but the effective net sizing down is pretty important for it to work well
GM
Gm back
What is the approach to risk management? Are you using a 90 day volatility look back or something similar ? Thanks
We estimate the expected volatility for current set of positions, and then shock the positions multiple standard deviations to come up with a worst case scenario. We then. scale to make sure that worst case scenario is not outside our maximum acceptable drawdown. That way we have a good idea of the worst-case outcome in a pre-defined way
Can you elaborate a little on the risk Control. Are you forecasting future volatility or scaling based on observed realized volatility or something else? Thanks.
Is this discount only for the first year or a lifetime discount? Cheers
The first year. But there will be another at the anniversary
Great. Subscribed today.
Terrific report Aahan.
Thanks, Budi!