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My favorite strategy indices have a low correlation to both stocks and to bonds. As always, our cutting-edge strategy indices are only available to subscribers, but I hope that some of the strategy indices presented here will provide inspiration for readers to create their own methods for dealing with an increasingly difficult investment environment. Remember, hope is for people who do not use data. Wise investors plan using evidence-based methods. The logic behind this strategy index is that we can generate return from exposure to a leveraged S&P 500 position which only risks 30% of our capital. The position almost acts like a synthetic call option on the S&P 500. We can hedge this exposure imperfectly, but somewhat effectively, by buying leveraged long duration government bonds, getting short leveraged Euros (deflation anyone?), and by buying leveraged gold in case of monetary instability or inflation. I think this strategy could struggle if stocks and bonds drop simultaneously, with the dollar weakening vs. other currencies. Please note that even though the rules of this strategy index have been publicly released, like any other index, we require the execution of a licensing agreement with ZOMMA LLC for any form of commercial use, whatsoever. ZOMMA Quant Warthog II Rules: I. Buy UPRO (NYSEARCA: UPRO ) with 30% of the dollar value of the portfolio. II. Buy TMF (NYSEARCA: TMF ) with 20% of the dollar value of the portfolio III. Buy EUO (NYSEARCA: EUO ) with 40% of the dollar value of the portfolio. IV. Buy UGL (NYSEARCA: UGL ) with 10% of the dollar value of the portfolio. V. Rebalance annually to maintain the 30%/20%/40%/10% dollar value split between the instruments. Here are the results of a backtest of these rules in a log scale: (click to enlarge) Click to enlarge (click to enlarge) Click to enlarge This strategy index has powered through recent market volatility largely unscathed. Its Sharpe and MAR decimate the S&P 500 over the same period, with true multi-asset class exposure for both return generation and hedging. This helps the strategy achieve a lower volatility than that of the S&P 500, with a CAGR which exceeds the S&P 500’s by approximately 6% per year. Thanks for reading. We feature even more impressive strategy indices in our subscription service. If this post was useful to you, consider giving it a try. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in UPRO, UGL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
Scalper1 News