HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

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jaj2276
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 » Wed Jul 31, 2019 11:12 am

Made my first monthly rebalance on my 16-Target vol slice and my Adaptive Allocation slice today. Given that approx 50% of the portfolio is still in the naive RP of 40/60, my overall RP portfolio is now 53% UPRO, 47% TMF. My 16-target vol is 71/29 while my Adaptive Alloc is 57/43. July ended up being a relatively flattish month performance wise.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 11:22 am

jaj2276 wrote:
Wed Jul 31, 2019 11:12 am
Made my first monthly rebalance on my 16-Target vol slice and my Adaptive Allocation slice today. Given that approx 50% of the portfolio is still in the naive RP of 40/60, my overall RP portfolio is now 53% UPRO, 47% TMF. My 16-target vol is 71/29 while my Adaptive Alloc is 57/43. July ended up being a relatively flattish month performance wise.
Interesting stuff, I've pondered running a couple of methods for more fun than anything (maybe just dedicate $5K to target vol). Easy to manage in M1 (assuming that is where you are doing it)? Does it truly isolate pies, or can it intelligently move assets from pie to pie for rebalancing, rather than forcing transactions? Example: Pie 1 is 75% VTI, 25% VXUS and Pie 2 is 25% VTI and 75% VXUS. If I updated both pies to be the opposite, would there be a sale?

Also how did you end up at 16%?


EDIT: Seems a lot more complicated than anticipated. I would need to either make a new IRA with M1 to totally separate them (not sure if I could transfer funds) or make 2 pies in the same account, but not only manually adjust the allocations within but also the allocation between the two, which means I couldn't rebalance them independently very easily. Would love to hear how you've set this up jaj2276. I suppose I could just use my own spreadsheet to manage this and keep everything in one lump in M1... but there is something nice about just pressing rebalance for the naive quarterly rebalanced portion.

EDIT 2.0: Seems I may be mistaken and you can rebalance only a pie: https://support.m1finance.com/hc/en-us/ ... -Portfolio. Will be interesting to see if it can move assets between them to reduce transactions.

jaj2276
Posts: 493
Joined: Sat Apr 16, 2011 5:13 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 » Wed Jul 31, 2019 11:46 am

MotoTrojan wrote:
Wed Jul 31, 2019 11:22 am
jaj2276 wrote:
Wed Jul 31, 2019 11:12 am
Made my first monthly rebalance on my 16-Target vol slice and my Adaptive Allocation slice today. Given that approx 50% of the portfolio is still in the naive RP of 40/60, my overall RP portfolio is now 53% UPRO, 47% TMF. My 16-target vol is 71/29 while my Adaptive Alloc is 57/43. July ended up being a relatively flattish month performance wise.
Interesting stuff, I've pondered running a couple of methods for more fun than anything (maybe just dedicate $5K to target vol). Easy to manage in M1 (assuming that is where you are doing it)? Does it truly isolate pies, or can it intelligently move assets from pie to pie for rebalancing, rather than forcing transactions? Example: Pie 1 is 75% VTI, 25% VXUS and Pie 2 is 25% VTI and 75% VXUS. If I updated both pies to be the opposite, would there be a sale?

Also how did you end up at 16%?
Yes, I'm using M1F. I ended up at 16 trying to maximize CAGR/Sharpe/Sartino and minimize Mkt Correlation. I likely couldn't defend a thesis on this value.

The M1F rebalance is seamless. My portfolio (when I constructed it) was 50% slice 1, 25% slice 2, and 25% slice 3 (slice 1 = naive RP; slice 2 = target vol; slice 3 = adaptive alloc). I can rebalance my portfolio to get my slices back to the desired percentages (I've said I won't do this). I can also choose a specific slice and rebalance among the holdings within that slice.

This morning I ran PV and got the new UPRO/TMF allocations for slice 2 and slice 3. I updated the allocations in slice 2 and slice 3 and then hit the rebalance button for each slice. Pretty easy.

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 11:46 am

samsdad wrote:
Wed Jul 31, 2019 6:51 am
After reviewing some posts by willthrill81 and vineviz, I'm thinking of modifying my strategy a little using the target volatility function in portfoliovisualizer using 80/20 equities/LTT as an upper limit. Doing some backtesting, it seems to have ameliorated the drops since 87.

Does anyone have an idea of the math equation that function utilizes just in case I need to do it by hand someday?

EDIT: I hope the math does't look like this stuff starting on page 8 of this JP Morgan paper https://www.jpmorgan.com/jpmpdf/1320691765000.pdf
Looks like it is quite simple so don't fret. Just take the annualized volatility over the look-back period (currently 22.32%) and divide your target allocation by that value. So 20%/22.32% gives an 89.6% UPRO allocation, same as PV :sharebeer .

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 11:48 am

jaj2276 wrote:
Wed Jul 31, 2019 11:46 am
MotoTrojan wrote:
Wed Jul 31, 2019 11:22 am
jaj2276 wrote:
Wed Jul 31, 2019 11:12 am
Made my first monthly rebalance on my 16-Target vol slice and my Adaptive Allocation slice today. Given that approx 50% of the portfolio is still in the naive RP of 40/60, my overall RP portfolio is now 53% UPRO, 47% TMF. My 16-target vol is 71/29 while my Adaptive Alloc is 57/43. July ended up being a relatively flattish month performance wise.
Interesting stuff, I've pondered running a couple of methods for more fun than anything (maybe just dedicate $5K to target vol). Easy to manage in M1 (assuming that is where you are doing it)? Does it truly isolate pies, or can it intelligently move assets from pie to pie for rebalancing, rather than forcing transactions? Example: Pie 1 is 75% VTI, 25% VXUS and Pie 2 is 25% VTI and 75% VXUS. If I updated both pies to be the opposite, would there be a sale?

Also how did you end up at 16%?
Yes, I'm using M1F. I ended up at 16 trying to maximize CAGR/Sharpe/Sartino and minimize Mkt Correlation. I likely couldn't defend a thesis on this value.

The M1F rebalance is seamless. My portfolio (when I constructed it) was 50% slice 1, 25% slice 2, and 25% slice 3 (slice 1 = naive RP; slice 2 = target vol; slice 3 = adaptive alloc). I can rebalance my portfolio to get my slices back to the desired percentages (I've said I won't do this). I can also choose a specific slice and rebalance among the holdings within that slice.

This morning I ran PV and got the new UPRO/TMF allocations for slice 2 and slice 3. I updated the allocations in slice 2 and slice 3 and then hit the rebalance button for each slice. Pretty easy.
Awesome, thank you very much! I am going to setup a spin-off target volatility at 20% with an 80% cap, for a little fun.

Do you know how contributions will work? Can you target funding a specific pie?

EDIT: Looks like I can buy/sell a specific pie. Seems the only hole in this now is how dividends are handled as an auto-invest I presume would add them to the underweight pie.
Last edited by MotoTrojan on Wed Jul 31, 2019 12:03 pm, edited 1 time in total.

MoneyMarathon
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MoneyMarathon » Wed Jul 31, 2019 12:03 pm

HEDGEFUNDIE wrote:
Tue Jul 30, 2019 11:43 pm
If the discussion is “what are viable replacements for large cap index funds in your portfolio” then MTUM needs to be part of the conversation. Here is the underlying index which goes back to 1994:

https://www.msci.com/documents/10199/f3 ... dc90fad923

Similar Std Dev and max drawdown to the S&P 500 during Great Recession but higher returns.
I just finished reading Larry Swedroe's Your Complete Guide to Factor Investing. I was impressed by the data in favor of the momentum factor. I was already impressed with the data in favor of the quality factor and the betting against beta factor. And I also am interested in exposure to beta, credit, and term factors, along with international diversification. Right now, some of the best vehicles for that exposure seem to be these, IMO:

PSLDX in tax-advantaged (domestic beta, credit, term)
MTUM (domestic beta, momentum, ER 0.15)
VIGI (international beta, quality, ER 0.25)
EEMV (emerging markets beta, low volatility, ER 0.25)
VGLT (term, ER 0.07)

I am not sure yet what I think about value and size. I am a bit interested in international low volatility, as an exposure to value and low volatility, which Larry suggested is the sweet spot for low vol. It may be a form of market timing, I guess, but Larry seems to be right that US low vol is priced richly right now. I also think I will avoid the global min vol because there's no foreign tax credit if there are a majority of holdings in the US.

Not yet sold on EDV, but I have been convinced to move further out on the yield curve (compared to the received wisdom of using intermediate bonds), given a long time horizon & equity heavy portfolio & it just being nice to get a bigger yield.
Last edited by MoneyMarathon on Wed Jul 31, 2019 12:07 pm, edited 1 time in total.

samsdad
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Joined: Sat Jan 02, 2016 6:20 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad » Wed Jul 31, 2019 12:07 pm

MotoTrojan wrote:
Wed Jul 31, 2019 11:46 am
samsdad wrote:
Wed Jul 31, 2019 6:51 am
After reviewing some posts by willthrill81 and vineviz, I'm thinking of modifying my strategy a little using the target volatility function in portfoliovisualizer using 80/20 equities/LTT as an upper limit. Doing some backtesting, it seems to have ameliorated the drops since 87.

Does anyone have an idea of the math equation that function utilizes just in case I need to do it by hand someday?

EDIT: I hope the math does't look like this stuff starting on page 8 of this JP Morgan paper https://www.jpmorgan.com/jpmpdf/1320691765000.pdf
Looks like it is quite simple so don't fret. Just take the annualized volatility over the look-back period (currently 22.32%) and divide your target allocation by that value. So 20%/22.32% gives an 89.6% UPRO allocation, same as PV :sharebeer .
Hey thanks. Uh, where do you find the annualized volatility info?

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 12:20 pm

samsdad wrote:
Wed Jul 31, 2019 12:07 pm
MotoTrojan wrote:
Wed Jul 31, 2019 11:46 am
samsdad wrote:
Wed Jul 31, 2019 6:51 am
After reviewing some posts by willthrill81 and vineviz, I'm thinking of modifying my strategy a little using the target volatility function in portfoliovisualizer using 80/20 equities/LTT as an upper limit. Doing some backtesting, it seems to have ameliorated the drops since 87.

Does anyone have an idea of the math equation that function utilizes just in case I need to do it by hand someday?

EDIT: I hope the math does't look like this stuff starting on page 8 of this JP Morgan paper https://www.jpmorgan.com/jpmpdf/1320691765000.pdf
Looks like it is quite simple so don't fret. Just take the annualized volatility over the look-back period (currently 22.32%) and divide your target allocation by that value. So 20%/22.32% gives an 89.6% UPRO allocation, same as PV :sharebeer .
Hey thanks. Uh, where do you find the annualized volatility info?
Same place you find PV's allocation for the next period:
Next period predicted allocation based on market data as of 07/30/2019.
Realized annualized volatility is 22.32% over the volatility period(s).
The adaptive allocation lists daily volatility but it is the same metric. I actually was chatting with the creator and it sounded like they were going to move all the outputs to annualized values for consistency.

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 12:21 pm

MoneyMarathon wrote:
Wed Jul 31, 2019 12:03 pm


Not yet sold on EDV, but I have been convinced to move further out on the yield curve (compared to the received wisdom of using intermediate bonds), given a long time horizon & equity heavy portfolio & it just being nice to get a bigger yield.
In isolation it doesn't really make sense but I would just look at it as a way to increase leverage on price changes. If you hold a high equity portfolio optimized with long-treasuries like TLT, and believe you'll gain some risk-adjusted return due to the uncorrelation, then something like EDV would be even better as it'll zig even more when equities zag.

samsdad
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Joined: Sat Jan 02, 2016 6:20 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad » Wed Jul 31, 2019 12:32 pm

MotoTrojan wrote:
Wed Jul 31, 2019 12:20 pm
samsdad wrote:
Wed Jul 31, 2019 12:07 pm
Same place you find PV's allocation for the next period:
Next period predicted allocation based on market data as of 07/30/2019.
Realized annualized volatility is 22.32% over the volatility period(s).
The adaptive allocation lists daily volatility but it is the same metric. I actually was chatting with the creator and it sounded like they were going to move all the outputs to annualized values for consistency.
Sorry, my fault. I was a bit opaque in my prior post(s). Let's say that PV is no longer available for whatever reason.

What's the equation for getting to the 22.32 number you cited by looking up, say, historical price information on yahoo finance, etc.? (I am trying to figure this out on my own too, not just being lazy.)

EDIT: something like this: https://www.investopedia.com/ask/answer ... -excel.asp Surely someone has a way to do this easily where the UPRO figures populate into an excel spreadsheet and go through the grinder to get a number.

caklim00
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 » Wed Jul 31, 2019 12:40 pm

How do you create new pies? This is really odd, I went to change call my Pie for my Roth IRA 'Adaptive 20 Day Lookback' and after saving it renamed my IRA to 'Adaptive 20 Day Lookback'. Really odd.

I downloaded the app with the hope that there would be some additional functionality in there, but still don't see anything. Tried adding UPRO and TMF to my existing allocation but since its already there it didn't do anything.

EDIT: Odd, there is no + symbol under My Pies. Something is messed up at M1
Last edited by caklim00 on Wed Jul 31, 2019 1:13 pm, edited 3 times in total.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 12:45 pm

samsdad wrote:
Wed Jul 31, 2019 12:32 pm
MotoTrojan wrote:
Wed Jul 31, 2019 12:20 pm
samsdad wrote:
Wed Jul 31, 2019 12:07 pm
Same place you find PV's allocation for the next period:
Next period predicted allocation based on market data as of 07/30/2019.
Realized annualized volatility is 22.32% over the volatility period(s).
The adaptive allocation lists daily volatility but it is the same metric. I actually was chatting with the creator and it sounded like they were going to move all the outputs to annualized values for consistency.
Sorry, my fault. I was a bit opaque in my prior post(s). Let's say that PV is no longer available for whatever reason.

What's the equation for getting to the 22.32 number you cited by looking up, say, historical price information on yahoo finance, etc.? (I am trying to figure this out on my own too, not just being lazy.)

EDIT: something like this: https://www.investopedia.com/ask/answer ... -excel.asp Surely someone has a way to do this easily where the UPRO figures populate into an excel spreadsheet and go through the grinder to get a number.
Understood, I was trying to show the math to go from volatility to allocation is super simple (no need for PV).

I didn't look at the file on investopedia but looks to be the right idea, but it is extremely basic operation to find the volatility and with only 20 days it wouldn't be insane to manually enter the price history.

Someone actually did post a googlesheet/excel link on here not long ago that showed the calculation, but I couldn't find it just now.

MoneyMarathon
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MoneyMarathon » Wed Jul 31, 2019 1:30 pm

MotoTrojan wrote:
Wed Jul 31, 2019 12:21 pm
If you hold a high equity portfolio optimized with long-treasuries like TLT, and believe you'll gain some risk-adjusted return due to the uncorrelation, then something like EDV would be even better as it'll zig even more when equities zag.
I sleep better knowing that I'd get a higher return if (a) the correlation breaks down or (b) yields rise year-over-year for decades in a row. I also get plenty of the same benefits with VGLT, I just don't need extra volatility that isn't compensated by much higher yield.

jaj2276
Posts: 493
Joined: Sat Apr 16, 2011 5:13 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 » Wed Jul 31, 2019 1:31 pm

samsdad wrote:
Wed Jul 31, 2019 12:32 pm
MotoTrojan wrote:
Wed Jul 31, 2019 12:20 pm
samsdad wrote:
Wed Jul 31, 2019 12:07 pm
Same place you find PV's allocation for the next period:
Next period predicted allocation based on market data as of 07/30/2019.
Realized annualized volatility is 22.32% over the volatility period(s).
The adaptive allocation lists daily volatility but it is the same metric. I actually was chatting with the creator and it sounded like they were going to move all the outputs to annualized values for consistency.
Sorry, my fault. I was a bit opaque in my prior post(s). Let's say that PV is no longer available for whatever reason.

What's the equation for getting to the 22.32 number you cited by looking up, say, historical price information on yahoo finance, etc.? (I am trying to figure this out on my own too, not just being lazy.)

EDIT: something like this: https://www.investopedia.com/ask/answer ... -excel.asp Surely someone has a way to do this easily where the UPRO figures populate into an excel spreadsheet and go through the grinder to get a number.
This too is easy. Go to Yahoo Finance (or anything where you can get daily closing prices). Then do stdev(range_of_cells)*sqrt(252). If I take UPRO and take the last 21 days returns (i.e. a trading month), I get an annualized volatility of 22.315%. Basically all you need are the closing prices for the time period in which you're interested.

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 1:33 pm

MoneyMarathon wrote:
Wed Jul 31, 2019 1:30 pm
MotoTrojan wrote:
Wed Jul 31, 2019 12:21 pm
If you hold a high equity portfolio optimized with long-treasuries like TLT, and believe you'll gain some risk-adjusted return due to the uncorrelation, then something like EDV would be even better as it'll zig even more when equities zag.
I sleep better knowing that I'd get a higher return if (a) the correlation breaks down or (b) yields rise year-over-year for decades in a row. I also get plenty of the same benefits with VGLT, I just don't need extra volatility that isn't compensated by much higher yield.
Fair enough. For someone that otherwise would be 100/0 I think a small dose of EDV adds more value than a larger (but still small) dose of TLT for example. I think TLT is a totally reasonably route, and will probably be what I'll do when I start using bonds in more core portfolio, primarily because my 401k would have LTT and not EDV.

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 1:34 pm

jaj2276 wrote:
Wed Jul 31, 2019 1:31 pm
samsdad wrote:
Wed Jul 31, 2019 12:32 pm
MotoTrojan wrote:
Wed Jul 31, 2019 12:20 pm
samsdad wrote:
Wed Jul 31, 2019 12:07 pm
Same place you find PV's allocation for the next period:
Next period predicted allocation based on market data as of 07/30/2019.
Realized annualized volatility is 22.32% over the volatility period(s).
The adaptive allocation lists daily volatility but it is the same metric. I actually was chatting with the creator and it sounded like they were going to move all the outputs to annualized values for consistency.
Sorry, my fault. I was a bit opaque in my prior post(s). Let's say that PV is no longer available for whatever reason.

What's the equation for getting to the 22.32 number you cited by looking up, say, historical price information on yahoo finance, etc.? (I am trying to figure this out on my own too, not just being lazy.)

EDIT: something like this: https://www.investopedia.com/ask/answer ... -excel.asp Surely someone has a way to do this easily where the UPRO figures populate into an excel spreadsheet and go through the grinder to get a number.
This too is easy. Go to Yahoo Finance (or anything where you can get daily closing prices). Then do stdev(range_of_cells)*sqrt(252). If I take UPRO and take the last 21 days returns (i.e. a trading month), I get an annualized volatility of 22.315%. Basically all you need are the closing prices for the time period in which you're interested.
Doing it this way would allow more advanced strategies too, such as replacing 20-day naive look-back with a 20 or even 60 day look-back that exponentially weights the more recent days higher. The main paper(s) on volatility targeting utilize this.

caklim00
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 » Wed Jul 31, 2019 1:35 pm

Can someone explain how to create a slice using TMF/UPRO and change the allocation within the slice. M1 is so confusing.

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 1:50 pm

caklim00 wrote:
Wed Jul 31, 2019 1:35 pm
Can someone explain how to create a slice using TMF/UPRO and change the allocation within the slice. M1 is so confusing.
Go to review, my pies, and make as many as you want. Then you can add those to your portfolio just like a fund, and pick the allocation to each pie. Once that is all settled you can change your allocation or rebalance the full portfolio of pies, or click on the pies (just as you would click on one fund) in the chart to allow an adjustment to the pie itself or to rebalance it.

samsdad
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad » Wed Jul 31, 2019 2:17 pm

jaj2276 wrote:
Wed Jul 31, 2019 1:31 pm
samsdad wrote:
Wed Jul 31, 2019 12:32 pm
MotoTrojan wrote:
Wed Jul 31, 2019 12:20 pm
samsdad wrote:
Wed Jul 31, 2019 12:07 pm
Same place you find PV's allocation for the next period:
Next period predicted allocation based on market data as of 07/30/2019.
Realized annualized volatility is 22.32% over the volatility period(s).
The adaptive allocation lists daily volatility but it is the same metric. I actually was chatting with the creator and it sounded like they were going to move all the outputs to annualized values for consistency.
Sorry, my fault. I was a bit opaque in my prior post(s). Let's say that PV is no longer available for whatever reason.

What's the equation for getting to the 22.32 number you cited by looking up, say, historical price information on yahoo finance, etc.? (I am trying to figure this out on my own too, not just being lazy.)

EDIT: something like this: https://www.investopedia.com/ask/answer ... -excel.asp Surely someone has a way to do this easily where the UPRO figures populate into an excel spreadsheet and go through the grinder to get a number.
This too is easy. Go to Yahoo Finance (or anything where you can get daily closing prices). Then do stdev(range_of_cells)*sqrt(252). If I take UPRO and take the last 21 days returns (i.e. a trading month), I get an annualized volatility of 22.315%. Basically all you need are the closing prices for the time period in which you're interested.
https://finance.yahoo.com/quote/UPRO/history?p=UPRO

ARRGGGGH! What am I doing wrong?

Code: Select all

Date		Adj Close	interday return
2019-07-01	55.560001	
2019-07-02	56.09			0.95%
2019-07-03	57.330002		2.21%
2019-07-05	57.080002		-0.44%
2019-07-08	56.23			-1.49%
2019-07-09	56.419998		0.34%
2019-07-10	57.220001		1.42%
2019-07-11	57.57			0.61%
2019-07-12	58.380001		1.41%
2019-07-15	58.389999		0.02%
2019-07-16	57.810001		-0.99%
2019-07-17	56.66			-1.99%
2019-07-18	57.240002		1.02%
2019-07-19	56.259998		-1.71%
2019-07-22	56.669998		0.73%
2019-07-23	57.830002		2.05%
2019-07-24	58.630001		1.38%
2019-07-25	57.759998		-1.48%
2019-07-26	58.939999		2.04%
2019-07-29	58.639999		-0.51%
2019-07-30	58.220001		-0.72%
volatility			1.34%
annualized volatility		21.30%

Here's the screen shot:
Image

EDIT: Figured it out! I needed the last day of June's closing number to get the interday return for 7/1/19. Now I get 22.32. :oops:

Topic Author
HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Wed Jul 31, 2019 2:39 pm

Consensus seems to be forming that the 20-day lookback is the better strategy. If someone would like to draft a short paragraph summarizing the methodology, reasoning and tradeoffs, I'd be happy to post it in the OP for newcomers.

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 2:47 pm

HEDGEFUNDIE wrote:
Wed Jul 31, 2019 2:39 pm
Consensus seems to be forming that the 20-day lookback is the better strategy. If someone would like to draft a short paragraph summarizing the methodology, reasoning and tradeoffs, I'd be happy to post it in the OP for newcomers.
You thinking about a swap :)? To be clear there are two strategies:

20-day look back reset of allocation based on risk parity

20-day look back reset based solely on UPRO and a target volatility (I’ve heard of people going from 16-25%)

The latter has better historical performance and most closely mirrors the studies done on this strategy.

MoneyMarathon
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MoneyMarathon » Wed Jul 31, 2019 3:11 pm

I hope you keep the original account running. It's valuable to have the live experiment and the posted updates without a change in strategy. As much as it might make sense to add gold or to use volatility targeting (and they both backtest!), I don't think it fits the "public service" mission of the OP to show whether the original strategy when money was put in survives, or crashes and burns.

caklim00
Posts: 2196
Joined: Mon May 26, 2008 10:09 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 » Wed Jul 31, 2019 3:15 pm

MotoTrojan wrote:
Wed Jul 31, 2019 1:50 pm
caklim00 wrote:
Wed Jul 31, 2019 1:35 pm
Can someone explain how to create a slice using TMF/UPRO and change the allocation within the slice. M1 is so confusing.
Go to review, my pies, and make as many as you want. Then you can add those to your portfolio just like a fund, and pick the allocation to each pie. Once that is all settled you can change your allocation or rebalance the full portfolio of pies, or click on the pies (just as you would click on one fund) in the chart to allow an adjustment to the pie itself or to rebalance it.
Thanks, I finally figured it out under research. Ok, I'm going to do 10k each in 40/60 risk parity (quarterly rebalace - OP), 20 day risk parity lookback (monthly rebalance), 20% UPRO volatility (monthly rebalance - capping UPRO at 80%).

Moto, if I had to guess, dividends will be re-invested to get the original pie back as close to as what it is set at. In my example I have 40/60 at 34%, and other 2 at 33%. I'm guessing whichever is the lagging one is going to get the dividends reinvested to (just a hunch).

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 3:20 pm

caklim00 wrote:
Wed Jul 31, 2019 3:15 pm
MotoTrojan wrote:
Wed Jul 31, 2019 1:50 pm
caklim00 wrote:
Wed Jul 31, 2019 1:35 pm
Can someone explain how to create a slice using TMF/UPRO and change the allocation within the slice. M1 is so confusing.
Go to review, my pies, and make as many as you want. Then you can add those to your portfolio just like a fund, and pick the allocation to each pie. Once that is all settled you can change your allocation or rebalance the full portfolio of pies, or click on the pies (just as you would click on one fund) in the chart to allow an adjustment to the pie itself or to rebalance it.
Thanks, I finally figured it out under research. Ok, I'm going to do 10k each in 40/60 risk parity (quarterly rebalace - OP), 20 day risk parity lookback (monthly rebalance), 20% UPRO volatility (monthly rebalance - capping UPRO at 80%).

Moto, if I had to guess, dividends will be re-invested to get the original pie back as close to as what it is set at. In my example I have 40/60 at 34%, and other 2 at 33%. I'm guessing whichever is the lagging one is going to get the dividends reinvested to (just a hunch).
Good luck! I ended up at 60% quarterly 40/30/30 UPRO/TMF/UPRO and 40% using the 20% target lookback w/ TMF. Not sure how I’ll handle future contributions. If things are going well I’ll probably defer that decision and add to PSLDX :).

rascott
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by rascott » Wed Jul 31, 2019 3:42 pm

caklim00 wrote:
Wed Jul 31, 2019 3:15 pm
MotoTrojan wrote:
Wed Jul 31, 2019 1:50 pm
caklim00 wrote:
Wed Jul 31, 2019 1:35 pm
Can someone explain how to create a slice using TMF/UPRO and change the allocation within the slice. M1 is so confusing.
Go to review, my pies, and make as many as you want. Then you can add those to your portfolio just like a fund, and pick the allocation to each pie. Once that is all settled you can change your allocation or rebalance the full portfolio of pies, or click on the pies (just as you would click on one fund) in the chart to allow an adjustment to the pie itself or to rebalance it.
Thanks, I finally figured it out under research. Ok, I'm going to do 10k each in 40/60 risk parity (quarterly rebalace - OP), 20 day risk parity lookback (monthly rebalance), 20% UPRO volatility (monthly rebalance - capping UPRO at 80%).

Moto, if I had to guess, dividends will be re-invested to get the original pie back as close to as what it is set at. In my example I have 40/60 at 34%, and other 2 at 33%. I'm guessing whichever is the lagging one is going to get the dividends reinvested to (just a hunch).
Yes.
Dividends go into your cash account. Then when they get over the $10 min threshold they are invested back into the entire portfolio at the set allocation. No different than if you made a new contribution.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 4:12 pm

rascott wrote:
Wed Jul 31, 2019 3:42 pm
caklim00 wrote:
Wed Jul 31, 2019 3:15 pm
MotoTrojan wrote:
Wed Jul 31, 2019 1:50 pm
caklim00 wrote:
Wed Jul 31, 2019 1:35 pm
Can someone explain how to create a slice using TMF/UPRO and change the allocation within the slice. M1 is so confusing.
Go to review, my pies, and make as many as you want. Then you can add those to your portfolio just like a fund, and pick the allocation to each pie. Once that is all settled you can change your allocation or rebalance the full portfolio of pies, or click on the pies (just as you would click on one fund) in the chart to allow an adjustment to the pie itself or to rebalance it.
Thanks, I finally figured it out under research. Ok, I'm going to do 10k each in 40/60 risk parity (quarterly rebalace - OP), 20 day risk parity lookback (monthly rebalance), 20% UPRO volatility (monthly rebalance - capping UPRO at 80%).

Moto, if I had to guess, dividends will be re-invested to get the original pie back as close to as what it is set at. In my example I have 40/60 at 34%, and other 2 at 33%. I'm guessing whichever is the lagging one is going to get the dividends reinvested to (just a hunch).
Yes.
Dividends go into your cash account. Then when they get over the $10 min threshold they are invested back into the entire portfolio at the set allocation. No different than if you made a new contribution.
All makes sense. I may go as far as to turn off the automatic reinvestment and manually distribute it to each pie based on the current allocation of the pie (not the target). Will make it a cleaner comparison between the performance of both strategies (I also am tracking XIRR of them and S&P500 based on contribution amounts/dates separately).

e5116
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by e5116 » Wed Jul 31, 2019 4:22 pm

Can somebody please point me to the post that talks about the 20-day lookback? (Or explain it succinctly.) I have no idea what that means and am curious. Tried to find it and see references to the "lookback" but no idea what the actual process is. Thanks!

butricksaid
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by butricksaid » Wed Jul 31, 2019 4:29 pm

HEDGEFUNDIE wrote:
Mon Jul 29, 2019 3:33 pm
tj wrote:
Mon Jul 29, 2019 3:32 pm

Only in IRA's or taxable too?
I would not touch any of these strategies in taxable.
Let's say I'm dumb enough to do this in taxable. It should have similar performance and a low tax drag as long as I rebalance via monthly paycheck funding instead of trading AND rebalancing quarterly. If ever my monthly contributions are insufficient to rebalance, then that's a good problem to have.

Finally, how do you have over $300k in Roth space to split between three portfolios {MTUM, PSLDX, 40/60 UPRO/TMF}?? [Backdoor] Roth IRA contributions are limited to ~$5k/year and 401(k) contributions are best done pre-tax for high income earners.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 4:30 pm

e5116 wrote:
Wed Jul 31, 2019 4:22 pm
Can somebody please point me to the post that talks about the 20-day lookback? (Or explain it succinctly.) I have no idea what that means and am curious. Tried to find it and see references to the "lookback" but no idea what the actual process is. Thanks!
You'll have to dig around for implementation but there are two core strategies:

20-day look back reset of allocation based on risk parity. Essentially instead of using the long-term 40/60 risk-parity balance between the assets, you use the last month's (20 trading days).

20-day look back reset based solely on UPRO and a target volatility (I’ve heard of people going from 16-25%). Essentially you pick a target volatility for UPRO and reduce your allocation to target that based on the last month's volatility, ignoring the secondary asset (TMF). More info on this strategy broadly can be found here: viewtopic.php?t=235811

caklim00
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 » Wed Jul 31, 2019 4:36 pm

e5116 wrote:
Wed Jul 31, 2019 4:22 pm
Can somebody please point me to the post that talks about the 20-day lookback? (Or explain it succinctly.) I have no idea what that means and am curious. Tried to find it and see references to the "lookback" but no idea what the actual process is. Thanks!
Moto can probably explain it better then me
viewtopic.php?f=10&t=272007&start=2650#p4657216

This is what I was originally planning on doing for my small 10k I was putting to this strategy. I just decided since it seems simple enough at M1, I'll do 3x that amount and split it between the 3 strategies that keep getting discussed here. They all seem like they have their merits.

Moto, I'm just going to keep my dividend reinvestments turned on. I know it will much up the actual results, but once I have all of this setup I only plan on looking at these accounts at month end when I'm doing the monthly rebalance for volatility and lookback and quarterly rebalance for 40/60.

butricksaid
Posts: 32
Joined: Fri Nov 03, 2017 11:24 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by butricksaid » Wed Jul 31, 2019 4:37 pm

butricksaid wrote:
Wed Jul 31, 2019 4:29 pm
HEDGEFUNDIE wrote:
Mon Jul 29, 2019 3:33 pm
tj wrote:
Mon Jul 29, 2019 3:32 pm

Only in IRA's or taxable too?
I would not touch any of these strategies in taxable.
Let's say I'm dumb enough to do this in taxable. It should have similar performance and a low tax drag as long as I rebalance via monthly paycheck funding instead of trading AND rebalancing quarterly. If ever my monthly contributions are insufficient to rebalance, then that's a good problem to have.

Finally, how do you have over $300k in Roth space to split between three portfolios {MTUM, PSLDX, 40/60 UPRO/TMF}?? [Backdoor] Roth IRA contributions are limited to ~$5k/year and 401(k) contributions are best done pre-tax for high income earners.
Plus you can let the portfolio ride tax-free by paying taxes using your earned income instead of withdrawing from the portfolio... seems fine to me.

Topic Author
HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Wed Jul 31, 2019 4:38 pm

butricksaid wrote:
Wed Jul 31, 2019 4:37 pm
butricksaid wrote:
Wed Jul 31, 2019 4:29 pm
HEDGEFUNDIE wrote:
Mon Jul 29, 2019 3:33 pm
tj wrote:
Mon Jul 29, 2019 3:32 pm

Only in IRA's or taxable too?
I would not touch any of these strategies in taxable.
Let's say I'm dumb enough to do this in taxable. It should have similar performance and a low tax drag as long as I rebalance via monthly paycheck funding instead of trading AND rebalancing quarterly. If ever my monthly contributions are insufficient to rebalance, then that's a good problem to have.

Finally, how do you have over $300k in Roth space to split between three portfolios {MTUM, PSLDX, 40/60 UPRO/TMF}?? [Backdoor] Roth IRA contributions are limited to ~$5k/year and 401(k) contributions are best done pre-tax for high income earners.
Plus you can let the portfolio ride tax-free by paying taxes using your earned income instead of withdrawing from the portfolio... seems fine to me.
Let’s say the account gets into the low millions. I won’t have six figures of earned income to pay in capital gains taxes.

And I never said I was doing this exclusively in Roth. I have Traditional IRAs and 401ks as well.

jaj2276
Posts: 493
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 » Wed Jul 31, 2019 8:32 pm

MotoTrojan wrote:
Wed Jul 31, 2019 11:22 am
jaj2276 wrote:
Wed Jul 31, 2019 11:12 am
...
...

EDIT: Seems a lot more complicated than anticipated. I would need to either make a new IRA with M1 to totally separate them (not sure if I could transfer funds) or make 2 pies in the same account, but not only manually adjust the allocations within but also the allocation between the two, which means I couldn't rebalance them independently very easily. Would love to hear how you've set this up jaj2276. I suppose I could just use my own spreadsheet to manage this and keep everything in one lump in M1... but there is something nice about just pressing rebalance for the naive quarterly rebalanced portion.

EDIT 2.0: Seems I may be mistaken and you can rebalance only a pie: https://support.m1finance.com/hc/en-us/ ... -Portfolio. Will be interesting to see if it can move assets between them to reduce transactions.
Not sure if you figured it out or not but I made three pies (a naive RP pie, a 16-vol pie, and an adaptive allocation pie). Each of these pies contained TMF and UPRO in specific percentages. In my main portfolio pie, I deleted TMF and UPRO (those were my original holdings in the portfolio pie when I started this whole ordeal) and added the three pies in the percentages I wanted for my portfolio pie (50% naive RP, 25% target, 25% adaptive).

So I have 4 total pies. 3 pies contain TMF/UPRO in various combinations and the other pie (i.e. portfolio pie) contains those 3 pies in the 50/25/25 split. If I wanted to maintain 50/25/25 (effectively sell the better performing risk pairty pies to buy the underperforming pies), I could rebalance the 50/25/25 pie. I don't intend to do this.

For non-quarter ending months, I modify the UPRO/TMF percentages on two of the pies and rebalance them. On the quarter ending months I adjust the UPRO/TMF targets on two of the pies and rebalance all three pies that contain UPRO/TMF.

I don't think you have to worry about minimizing transactions as behind the scenes M1 is doing that for you. If you had two pies that had UPRO/TMF in different percentages and you changed them such that pie 1 wants to decrease UPRO (let's say sell $2000 worth) and pie 2 wants to increase UPRO by $3000, M1 is only going to go out and buy $1000 of UPRO. Not only do they do this across your account but they do this across all their accounts to minimize the amount for any security they have to transact in the market.

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Jul 31, 2019 8:46 pm

jaj2276 wrote:
Wed Jul 31, 2019 8:32 pm
MotoTrojan wrote:
Wed Jul 31, 2019 11:22 am
jaj2276 wrote:
Wed Jul 31, 2019 11:12 am
...
...

EDIT: Seems a lot more complicated than anticipated. I would need to either make a new IRA with M1 to totally separate them (not sure if I could transfer funds) or make 2 pies in the same account, but not only manually adjust the allocations within but also the allocation between the two, which means I couldn't rebalance them independently very easily. Would love to hear how you've set this up jaj2276. I suppose I could just use my own spreadsheet to manage this and keep everything in one lump in M1... but there is something nice about just pressing rebalance for the naive quarterly rebalanced portion.

EDIT 2.0: Seems I may be mistaken and you can rebalance only a pie: https://support.m1finance.com/hc/en-us/ ... -Portfolio. Will be interesting to see if it can move assets between them to reduce transactions.
Not sure if you figured it out or not but I made three pies (a naive RP pie, a 16-vol pie, and an adaptive allocation pie). Each of these pies contained TMF and UPRO in specific percentages. In my main portfolio pie, I deleted TMF and UPRO (those were my original holdings in the portfolio pie when I started this whole ordeal) and added the three pies in the percentages I wanted for my portfolio pie (50% naive RP, 25% target, 25% adaptive).

So I have 4 total pies. 3 pies contain TMF/UPRO in various combinations and the other pie (i.e. portfolio pie) contains those 3 pies in the 50/25/25 split. If I wanted to maintain 50/25/25 (effectively sell the better performing risk pairty pies to buy the underperforming pies), I could rebalance the 50/25/25 pie. I don't intend to do this.

For non-quarter ending months, I modify the UPRO/TMF percentages on two of the pies and rebalance them. On the quarter ending months I adjust the UPRO/TMF targets on two of the pies and rebalance all three pies that contain UPRO/TMF.

I don't think you have to worry about minimizing transactions as behind the scenes M1 is doing that for you. If you had two pies that had UPRO/TMF in different percentages and you changed them such that pie 1 wants to decrease UPRO (let's say sell $2000 worth) and pie 2 wants to increase UPRO by $3000, M1 is only going to go out and buy $1000 of UPRO. Not only do they do this across your account but they do this across all their accounts to minimize the amount for any security they have to transact in the market.
Thank you, all setup similarly. Only issue is dividends which I could manually contribute if I wanted to maintain true division of growth.

schismal
Posts: 193
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by schismal » Thu Aug 01, 2019 6:00 am

I don't really have time to do a deep dive into this right now, but I compiled the monthly returns for UPRO/TMF targeted volatility (15% using downside volatility, with monthly adjustment), and compared it to the monthly returns for a static 80/20 allocation (monthly rebalancing).

I was primarily curious what happened on those months where volatility targeting indicated the allocation should be above 80/20, and those months are highlighted. So for anyone curious:

https://docs.google.com/spreadsheets/d/ ... sp=sharing

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lock.that.stock
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by lock.that.stock » Thu Aug 01, 2019 6:17 am

schismal wrote:
Thu Aug 01, 2019 6:00 am
I don't really have time to do a deep dive into this right now, but I compiled the monthly returns for UPRO/TMF targeted volatility (15% using downside volatility, with monthly adjustment), and compared it to the monthly returns for a static 80/20 allocation (monthly rebalancing).

I was primarily curious what happened on those months where volatility targeting indicated the allocation should be above 80/20, and those months are highlighted. So for anyone curious:

https://docs.google.com/spreadsheets/d/ ... sp=sharing
What was the CAGR / final amounts under each of those scenarios?

schismal
Posts: 193
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by schismal » Thu Aug 01, 2019 6:46 am

lock.that.stock wrote:
Thu Aug 01, 2019 6:17 am
schismal wrote:
Thu Aug 01, 2019 6:00 am
I don't really have time to do a deep dive into this right now, but I compiled the monthly returns for UPRO/TMF targeted volatility (15% using downside volatility, with monthly adjustment), and compared it to the monthly returns for a static 80/20 allocation (monthly rebalancing).

I was primarily curious what happened on those months where volatility targeting indicated the allocation should be above 80/20, and those months are highlighted. So for anyone curious:

https://docs.google.com/spreadsheets/d/ ... sp=sharing
What was the CAGR / final amounts under each of those scenarios?
15% negative vol: CAGR 37.87% (10k -> 217k)
80/20: CAGR 32.24% (10k -> 145k) -- not that anyone should be holding this ratio long-term

And for comparison:
40/60 (monthly balancing, as above): CAGR 26.9% (10k -> 98k)

I'm not as well-versed on the volatility trending studies, but has anyone looked at the difference between targeting absolute volatility versus only negative volatility? If you cap an asset that has shown recent upward volatility, wouldn't that be balancing against momentum? With the caveat that this is obviously very limited backtesting, it's made a big difference over the last decade. 15% absolute volatility has a CAGR 30.46% (10k -> 128k).

rustymutt
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by rustymutt » Thu Aug 01, 2019 6:55 am

I don't partake, but have friends who have invested in these 2&3x leveraged funds. Yes, they've made money, but lost money also, and kept telling me that I was investing correcting, and my 10% annual 10 year return was boring, but working also, and they saw the results. To me it looks as if they were chasing returns. Scared me, and I won't have anything to do with them. I'm not a gambler. I retired at age 53, and golf a lot a decade later. :sharebeer
Even educators need education. And some can be hard headed to the point of needing time out.

caklim00
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 » Thu Aug 01, 2019 8:52 am

schismal wrote:
Thu Aug 01, 2019 6:46 am
lock.that.stock wrote:
Thu Aug 01, 2019 6:17 am
schismal wrote:
Thu Aug 01, 2019 6:00 am
I don't really have time to do a deep dive into this right now, but I compiled the monthly returns for UPRO/TMF targeted volatility (15% using downside volatility, with monthly adjustment), and compared it to the monthly returns for a static 80/20 allocation (monthly rebalancing).

I was primarily curious what happened on those months where volatility targeting indicated the allocation should be above 80/20, and those months are highlighted. So for anyone curious:

https://docs.google.com/spreadsheets/d/ ... sp=sharing
What was the CAGR / final amounts under each of those scenarios?
15% negative vol: CAGR 37.87% (10k -> 217k)
80/20: CAGR 32.24% (10k -> 145k) -- not that anyone should be holding this ratio long-term

And for comparison:
40/60 (monthly balancing, as above): CAGR 26.9% (10k -> 98k)

I'm not as well-versed on the volatility trending studies, but has anyone looked at the difference between targeting absolute volatility versus only negative volatility? If you cap an asset that has shown recent upward volatility, wouldn't that be balancing against momentum? With the caveat that this is obviously very limited backtesting, it's made a big difference over the last decade. 15% absolute volatility has a CAGR 30.46% (10k -> 128k).
Super interesting. Definitely a bunch of 100% UPRO months. Looks like Sortino is maxed at 16% downside volatility. Sharpe at 15% or 16%. Very interesting stuff.

JBeck
Posts: 147
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by JBeck » Thu Aug 01, 2019 9:14 am

MoneyMarathon wrote:
Wed Jul 31, 2019 3:11 pm
I hope you keep the original account running. It's valuable to have the live experiment and the posted updates without a change in strategy.
I agree with this

schismal
Posts: 193
Joined: Sat Apr 13, 2019 8:53 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by schismal » Thu Aug 01, 2019 9:27 am

caklim00 wrote:
Thu Aug 01, 2019 8:52 am
Super interesting. Definitely a bunch of 100% UPRO months. Looks like Sortino is maxed at 16% downside volatility. Sharpe at 15% or 16%. Very interesting stuff.
Well I just chose an arbitrary number at 15%, honestly, but we can do all kinds of overfitting if we want. For some reason, a 15 day lookback at 16% downward volatility gave you a whopping 43% CAGR and 2.74 Sortino.

I'm mostly interested in whether someone smarter than me has looked at the underlying strategy in a more robust way.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Thu Aug 01, 2019 9:34 am

schismal wrote:
Thu Aug 01, 2019 9:27 am
caklim00 wrote:
Thu Aug 01, 2019 8:52 am
Super interesting. Definitely a bunch of 100% UPRO months. Looks like Sortino is maxed at 16% downside volatility. Sharpe at 15% or 16%. Very interesting stuff.
Well I just chose an arbitrary number at 15%, honestly, but we can do all kinds of overfitting if we want. For some reason, a 15 day lookback at 16% downward volatility gave you a whopping 43% CAGR and 2.74 Sortino.

I'm mostly interested in whether someone smarter than me has looked at the underlying strategy in a more robust way.
Well for starters I would use the 1987+ data (where we have available daily data). At least with bidirectional volatility sharpe and Sortino look to top at closer to 20% target. Same applies using absolute vol during the years the funds were around.

Looking at 1987-2018 a 16% downside vol returned 19.8% at 28.2% StDev w/ a whopping 57.7% drawdown. A 20% absolute returned 20.6% at 25.1% StDev and only a 39% drawdown. That is a massive difference.
Last edited by MotoTrojan on Thu Aug 01, 2019 9:39 am, edited 1 time in total.

Topic Author
HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Thu Aug 01, 2019 9:37 am

JBeck wrote:
Thu Aug 01, 2019 9:14 am
MoneyMarathon wrote:
Wed Jul 31, 2019 3:11 pm
I hope you keep the original account running. It's valuable to have the live experiment and the posted updates without a change in strategy.
I agree with this
Ask and ye shall receive.

OP updated with latest rebalance.

schismal
Posts: 193
Joined: Sat Apr 13, 2019 8:53 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by schismal » Thu Aug 01, 2019 9:55 am

MotoTrojan wrote:
Thu Aug 01, 2019 9:34 am
Well for starters I would use the 1987+ data (where we have available daily data). At least with bidirectional volatility sharpe and Sortino look to top at closer to 20% target. Same applies using absolute vol during the years the funds were around.

Looking at 1987-2018 a 16% downside vol returned 19.8% at 28.2% StDev w/ a whopping 57.7% drawdown. A 20% absolute returned 20.6% at 25.1% StDev and only a 39% drawdown. That is a massive difference.
Interesting, thanks for running that. 20% downside on the PV data wasn't bad at all (38.35% CAGR, 26.7% stdev, 2.38 Sortino). Wonder how it would look on your expanded data set.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Thu Aug 01, 2019 10:03 am

schismal wrote:
Thu Aug 01, 2019 9:55 am
MotoTrojan wrote:
Thu Aug 01, 2019 9:34 am
Well for starters I would use the 1987+ data (where we have available daily data). At least with bidirectional volatility sharpe and Sortino look to top at closer to 20% target. Same applies using absolute vol during the years the funds were around.

Looking at 1987-2018 a 16% downside vol returned 19.8% at 28.2% StDev w/ a whopping 57.7% drawdown. A 20% absolute returned 20.6% at 25.1% StDev and only a 39% drawdown. That is a massive difference.
Interesting, thanks for running that. 20% downside on the PV data wasn't bad at all (38.35% CAGR, 26.7% stdev, 2.38 Sortino). Wonder how it would look on your expanded data set.
18.9% return at an insane 31% StDev w/ 67% drawdown; it really doesn't like the tech meltdown. Interestingly though just looking at the global financial crisis it also had a larger drawdown at almost 54% compared to 39% for absolute vol. During the tech crash the 20% absolute vol only had a 35% drawdown.

Dropping the downside vol to 10% starts to bring the two together but performance is still hurt w/ 19.3% CAGR, 24.9% StDev, and 37% drawdown for the full period.

I'll stick with 20% absolute for my side-side-bet :twisted: . Also I got a chuckle out of your saying "wasn't bad at all" in response to a >38% CAGR. If only that were sustainable.

schismal
Posts: 193
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by schismal » Thu Aug 01, 2019 10:13 am

MotoTrojan wrote:
Thu Aug 01, 2019 10:03 am
schismal wrote:
Thu Aug 01, 2019 9:55 am
MotoTrojan wrote:
Thu Aug 01, 2019 9:34 am
Well for starters I would use the 1987+ data (where we have available daily data). At least with bidirectional volatility sharpe and Sortino look to top at closer to 20% target. Same applies using absolute vol during the years the funds were around.

Looking at 1987-2018 a 16% downside vol returned 19.8% at 28.2% StDev w/ a whopping 57.7% drawdown. A 20% absolute returned 20.6% at 25.1% StDev and only a 39% drawdown. That is a massive difference.
Interesting, thanks for running that. 20% downside on the PV data wasn't bad at all (38.35% CAGR, 26.7% stdev, 2.38 Sortino). Wonder how it would look on your expanded data set.
18.9% return at an insane 31% StDev w/ 67% drawdown; it really doesn't like the tech meltdown. Interestingly though just looking at the global financial crisis it also had a larger drawdown at almost 54% compared to 39% for absolute vol. During the tech crash the 20% absolute vol only had a 35% drawdown.

Dropping the downside vol to 10% starts to bring the two together but performance is still hurt w/ 19.3% CAGR, 24.9% StDev, and 37% drawdown for the full period.

I'll stick with 20% absolute for my side-side-bet :twisted: . Also I got a chuckle out of your saying "wasn't bad at all" in response to a >38% CAGR. If only that were sustainable.
Yup, sounds like that's the better result in the longer data set. Appreciate you running those tests!

I don't think I could do months of 100% UPRO, even if the volatility gods called for it. If I did a volatility bet, I think I'd need to cap either asset at 70 or 80% in order to sleep at night.

rascott
Posts: 2112
Joined: Wed Apr 15, 2015 10:53 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by rascott » Thu Aug 01, 2019 10:17 am

This volatility discussion is interesting and I'm certainly learning from it. And I'll keep following along. But for now just sticking with the 40/60 OP's model.

The adaptive model gave me 55/45 UPRO/TMF for August....that sound right?

caklim00
Posts: 2196
Joined: Mon May 26, 2008 10:09 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 » Thu Aug 01, 2019 10:42 am

schismal wrote:
Thu Aug 01, 2019 10:13 am
MotoTrojan wrote:
Thu Aug 01, 2019 10:03 am
schismal wrote:
Thu Aug 01, 2019 9:55 am
MotoTrojan wrote:
Thu Aug 01, 2019 9:34 am
Well for starters I would use the 1987+ data (where we have available daily data). At least with bidirectional volatility sharpe and Sortino look to top at closer to 20% target. Same applies using absolute vol during the years the funds were around.

Looking at 1987-2018 a 16% downside vol returned 19.8% at 28.2% StDev w/ a whopping 57.7% drawdown. A 20% absolute returned 20.6% at 25.1% StDev and only a 39% drawdown. That is a massive difference.
Interesting, thanks for running that. 20% downside on the PV data wasn't bad at all (38.35% CAGR, 26.7% stdev, 2.38 Sortino). Wonder how it would look on your expanded data set.
18.9% return at an insane 31% StDev w/ 67% drawdown; it really doesn't like the tech meltdown. Interestingly though just looking at the global financial crisis it also had a larger drawdown at almost 54% compared to 39% for absolute vol. During the tech crash the 20% absolute vol only had a 35% drawdown.

Dropping the downside vol to 10% starts to bring the two together but performance is still hurt w/ 19.3% CAGR, 24.9% StDev, and 37% drawdown for the full period.

I'll stick with 20% absolute for my side-side-bet :twisted: . Also I got a chuckle out of your saying "wasn't bad at all" in response to a >38% CAGR. If only that were sustainable.
Yup, sounds like that's the better result in the longer data set. Appreciate you running those tests!

I don't think I could do months of 100% UPRO, even if the volatility gods called for it. If I did a volatility bet, I think I'd need to cap either asset at 70 or 80% in order to sleep at night.
I'm thinking of doing 100% UPRO if its called for, but its only starting from 1/3 of the pie (40/60 and 20 day lookback risk parity for the other 2/3).

By the way 20% volatility right now is 79% UPRO, 21% TMF. Looks like the past few days has really increased the volatility. I can't wait for my money to make it over to M1, I'll all setup and ready to go.

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Thu Aug 01, 2019 11:20 am

caklim00 wrote:
Thu Aug 01, 2019 10:42 am
schismal wrote:
Thu Aug 01, 2019 10:13 am
MotoTrojan wrote:
Thu Aug 01, 2019 10:03 am
schismal wrote:
Thu Aug 01, 2019 9:55 am
MotoTrojan wrote:
Thu Aug 01, 2019 9:34 am
Well for starters I would use the 1987+ data (where we have available daily data). At least with bidirectional volatility sharpe and Sortino look to top at closer to 20% target. Same applies using absolute vol during the years the funds were around.

Looking at 1987-2018 a 16% downside vol returned 19.8% at 28.2% StDev w/ a whopping 57.7% drawdown. A 20% absolute returned 20.6% at 25.1% StDev and only a 39% drawdown. That is a massive difference.
Interesting, thanks for running that. 20% downside on the PV data wasn't bad at all (38.35% CAGR, 26.7% stdev, 2.38 Sortino). Wonder how it would look on your expanded data set.
18.9% return at an insane 31% StDev w/ 67% drawdown; it really doesn't like the tech meltdown. Interestingly though just looking at the global financial crisis it also had a larger drawdown at almost 54% compared to 39% for absolute vol. During the tech crash the 20% absolute vol only had a 35% drawdown.

Dropping the downside vol to 10% starts to bring the two together but performance is still hurt w/ 19.3% CAGR, 24.9% StDev, and 37% drawdown for the full period.

I'll stick with 20% absolute for my side-side-bet :twisted: . Also I got a chuckle out of your saying "wasn't bad at all" in response to a >38% CAGR. If only that were sustainable.
Yup, sounds like that's the better result in the longer data set. Appreciate you running those tests!

I don't think I could do months of 100% UPRO, even if the volatility gods called for it. If I did a volatility bet, I think I'd need to cap either asset at 70 or 80% in order to sleep at night.
I'm thinking of doing 100% UPRO if its called for, but its only starting from 1/3 of the pie (40/60 and 20 day lookback risk parity for the other 2/3).

By the way 20% volatility right now is 79% UPRO, 21% TMF. Looks like the past few days has really increased the volatility. I can't wait for my money to make it over to M1, I'll all setup and ready to go.
Interesting how a couple of days dropped the allocation so much. I capped at 80% so looks like I ended up right on target.

samsdad
Posts: 758
Joined: Sat Jan 02, 2016 6:20 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad » Thu Aug 01, 2019 1:21 pm

schismal wrote:
Thu Aug 01, 2019 9:27 am
caklim00 wrote:
Thu Aug 01, 2019 8:52 am
Super interesting. Definitely a bunch of 100% UPRO months. Looks like Sortino is maxed at 16% downside volatility. Sharpe at 15% or 16%. Very interesting stuff.
Well I just chose an arbitrary number at 15%, honestly, but we can do all kinds of overfitting if we want. For some reason, a 15 day lookback at 16% downward volatility gave you a whopping 43% CAGR and 2.74 Sortino.

I'm mostly interested in whether someone smarter than me has looked at the underlying strategy in a more robust way.
For some reason PV won’t allow me to specify at 15-day look-back period. The shortest I can do is a month. Can you tell me your settings?

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