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

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

Post by MoneyMarathon »

rascott wrote: Thu Jul 25, 2019 5:23 pm How would one setup a similar position with ETFs?
The secondary index tracked by PSLDX is the same one tracked by Vanguard's BLV and has a mix of long term treasuries and long term credit. I believe that 35% UPRO / 20% TMF / 45% VCLT would establish a similar position.

-110% cash (-70% from UPRO and -40% from TMF)
105% S&P 500
105% Bonds (57% treasuries and 43% corporate)

To test that, I looked at how they compared historically in PV.

Image

Looks pretty close to me. P1 is 100% PSLDX, and P2 is 35% UPRO / 20% TMF / 45% VCLT.

I can't check this back to 1970 with VCLT because I don't have a historical time series for it, but the spreadsheet does have VCIT (intermediate), so I figure you can maybe just add about 1% give or take to the final CAGR figure, along with a bit more volatility and risk, for taking extra duration on the corporate bond side. This also lets us get a sense of approximately how bad the 1970s would have been for the fund, assuming that the active management did neither good nor harm (it would be a little worse than shown during rising rates, because the numbers are for a VCIT portfolio).

Here is the full time period.

Image

P1 is 35% UPRO / 20% TMF / 45% VCIT (instead of VCLT, I have no data for this)
P2 is 40% UPRO / 60% IEF (intermediate 7-10 yr treasury)
P3 is 40% UPRO / 60% TLT (20+ year treasury)
P4 is 40% UPRO / 60% EDV (extended duration treasury)
P5 is 40% UPRO / 15% TMF / 45% EDV (extended duration treasury)

And here's the worst time period, 1970-1981.

Image

If going the ETF route, it might make sense to tinker a little first to make sure it fits the kind of risks you want to take. Putting less in Direxion and going with EDV on the bond side seems like an attractive choice, if not going for full 3x leverage. If something other than the S&P 500 and extended duration treasuries are wanted, there could be room for that too (like VCLT, in this case).
NMBob
Posts: 385
Joined: Thu Apr 23, 2015 8:13 pm

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

Post by NMBob »

Can anyone tell if psldx- Pimco stockplus long duration, is actually available with no minimum and a $19.99 transaction fee at Etrade?
AvailabilityOpen To New Investors
Initial Investment$0
Addl. Investment$0
Initial IRA$0
Additional IRA$0
Transaction Fee
Yes
Sales Charge
None
Fund Redemption Fee
0%
(Thinking 0 instead of 1 as a minimum was weird, I checked the more common PONAX - pimco income class A , and see they list the minimums for it as 0 also)

https://www.etrade.wallst.com/v1/stocks ... country=US
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Steve Reading
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Steve Reading »

MotoTrojan wrote: Thu Jul 25, 2019 5:17 pm Even if StDev isn't a perfect measure or risk, it is a good measure of volatility, no?
I have personal definitions for those concepts but in general, they're open to interpretation. My point doesn't hinge on that at all though. It's as follows:

Daily market returns are nowhere near normally distributed. So applying St. Dev. to such a sample is literally meaningless. St. Dev. assumes normality to make sense. Using St. Dev. on a non-normal distribution is like taking the cosine of a weight (lbs). Sure, you'll get something, but it's just meaningless.

So then you're grabbing that number and using it to guide Asset Allocation in some way (using inverse volatility formulas). It's the classic "garbage in, garbage out". The formula and concepts (like risk parity) might be excellent but if the input is meaningless, so is the answer.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

305pelusa wrote: Thu Jul 25, 2019 7:47 pm
MotoTrojan wrote: Thu Jul 25, 2019 5:17 pm Even if StDev isn't a perfect measure or risk, it is a good measure of volatility, no?
I have personal definitions for those concepts but in general, they're open to interpretation. My point doesn't hinge on that at all though. It's as follows:

Daily market returns are nowhere near normally distributed. So applying St. Dev. to such a sample is literally meaningless. St. Dev. assumes normality to make sense. Using St. Dev. on a non-normal distribution is like taking the cosine of a weight (lbs). Sure, you'll get something, but it's just meaningless.

So then you're grabbing that number and using it to guide Asset Allocation in some way (using inverse volatility formulas). It's the classic "garbage in, garbage out". The formula and concepts (like risk parity) might be excellent but if the input is meaningless, so is the answer.
How would you articulate short-term volatility then? I don't quite like your example:

If I take the cosine of 5 weights, it still makes no sense. But if I take the StDev of 5 years of returns, it does :P .
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Steve Reading
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Steve Reading »

MotoTrojan wrote: Thu Jul 25, 2019 7:55 pm
305pelusa wrote: Thu Jul 25, 2019 7:47 pm
MotoTrojan wrote: Thu Jul 25, 2019 5:17 pm Even if StDev isn't a perfect measure or risk, it is a good measure of volatility, no?
I have personal definitions for those concepts but in general, they're open to interpretation. My point doesn't hinge on that at all though. It's as follows:

Daily market returns are nowhere near normally distributed. So applying St. Dev. to such a sample is literally meaningless. St. Dev. assumes normality to make sense. Using St. Dev. on a non-normal distribution is like taking the cosine of a weight (lbs). Sure, you'll get something, but it's just meaningless.

So then you're grabbing that number and using it to guide Asset Allocation in some way (using inverse volatility formulas). It's the classic "garbage in, garbage out". The formula and concepts (like risk parity) might be excellent but if the input is meaningless, so is the answer.
How would you articulate short-term volatility then? I don't quite like your example:

If I take the cosine of 5 weights, it still makes no sense. But if I take the StDev of 5 years of returns, it does :P .
It is more appropriate to approximate daily returns with a Cauchy distribution (aka "fat-tailed" normal distribution). These distributions can be explained by the mean and a parameter that defines how fat the tails are (known as "alpha"). This form of distribution is sometimes referred to as "wild variation" or "power law" distribution.
Alpha is extremely difficult to pin down. A small change in alpha leads to big changes in the distribution so uncertainty is problematic.

I don't have advice for you as to how to marry the concepts of Cauchy distributions and some quantitative level of "risk" or "volatility". All I know is that I mostt definitely wouldn't use the Standard deviation of the previous month of trading for anything at all.

As for my analogy, its purpose is to simply demonstrate the absurdity of applying a mathematical function to objects that don't fulfill underlying assumptions. Two examples specifically in probability:

- Deriving probabilities assuming variables are independent when they aren't.
- Using the median (instead of the mean) to derive an R^2 value.

You will get answers. But they're "meaningless". Does that make sense?
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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coingaroo
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo »

305pelusa wrote: Thu Jul 25, 2019 5:02 pm To the people using recent-volatility (like previous 20 days) to dynamically shift your allocations, please answer the following:

It is well-documented that market daily returns are not normally distributed. Not even close. The St. Dev. (as a measure of risk) is quite literally a meaningless number for a non-normal distribution.

Over longer horizons (years), the Central Limit Theorem dictates that the return distributions will be approximately normal (even though it is constituted by non-normal daily distributions... that's where the CLT comes in). So over long time horizons, St. Dev does start to make sense. The OP's choice of using long-term volatility is on the right track and theoretically sound IMO.

Knowing this, what makes you think it is prudent in any way to use such a short-term window of standard deviation?

And no "it backtested well!" answers. I'm looking for an actual theoretical or intuitive explanation as to why you think it makes sense.

Thanks.
Volatility is time varying throughout markets, due to factors like monetary policies of central banks. Hence, a portfolio experiences different levels of volatility over time. By targeting volatility to one level, you take on the same consistent level risk over time. Because volatility drag is a function of volatility and not directly leverage, it means that if you reduce leverage when volatility is high, you reduce volatility drag's impact on returns, and conversely, you allow yourself to leverage more when the volatility drag is less.

(Note that this applies even if you use no leverage. It is a complete myth that volatility drag only applies when you use leverage; it applies at all fundamental levels of volatility, when you buy a SPY or index fund, vol drag simply forms part of the base returns and you don't see it compared).

To quote Andrew Ang:

"If volatility is so predictable, then volatility trading should lead to terrific investment gains. It does. Despite my pessimism on predicting expected returns of the previous section, I am far more enthusiastic on strategies predicting volatilities"

Another reason why volatility targeting improves returns is because it has a modest (statistically significant, tradable, and return enhancing; but obviously not always right) correlation with future equity market returns. From the book 'Asset Management' by Andrew Ang:

VIX correlation with 1 quarter equity returns: 0.12; or 1 year: 0.10
Past volatility correlation with 1 quarter equity returns: 0.05 or 0.09.
caklim00
Posts: 2344
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 »

Running the 20 day backlook procedure:
1: PV website, click on Adaptive Allocation under Timing Models (bottom right)
2: Add your tickers (only use 2 for now)
3: Set Volatility Period to Specify and then manually enter 20 days
4: Monthly rebalance
5: Run the test
6: Under results, click Timing Periods tab
7: Scroll to the very bottom and it'll show you the allocation based on the current signal date, as well as the raw volatility of each fund

Code: Select all

#	Start	End	Months	Assets	Asset Performance	Timing Portfolio
1	Jan-10	Jan-10	1	42.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.70% ProShares UltraPro S&P500 (UPRO)	TMF: 7.34%, UPRO: -11.19%	-3.35%
2	Feb-10	Feb-10	1	56.04% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.96% ProShares UltraPro S&P500 (UPRO)	TMF: -1.82%, UPRO: 8.94%	2.91%
3	Mar-10	Mar-10	1	56.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.69% ProShares UltraPro S&P500 (UPRO)	TMF: -6.73%, UPRO: 18.90%	4.47%
4	Apr-10	Apr-10	1	41.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.31% ProShares UltraPro S&P500 (UPRO)	TMF: 9.96%, UPRO: 4.08%	6.53%
5	May-10	May-10	1	54.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.97% ProShares UltraPro S&P500 (UPRO)	TMF: 16.54%, UPRO: -24.15%	-2.17%
6	Jun-10	Jun-10	1	57.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.63% ProShares UltraPro S&P500 (UPRO)	TMF: 16.73%, UPRO: -16.58%	2.53%
7	Jul-10	Jul-10	1	59.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 40.92% ProShares UltraPro S&P500 (UPRO)	TMF: -3.90%, UPRO: 21.17%	6.36%
8	Aug-10	Aug-10	1	57.16% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.84% ProShares UltraPro S&P500 (UPRO)	TMF: 25.94%, UPRO: -13.46%	9.06%
9	Sep-10	Sep-10	1	44.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.71% ProShares UltraPro S&P500 (UPRO)	TMF: -9.02%, UPRO: 27.94%	11.57%
10	Oct-10	Oct-10	1	40.82% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.18% ProShares UltraPro S&P500 (UPRO)	TMF: -13.57%, UPRO: 11.44%	1.23%
11	Nov-10	Nov-10	1	41.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.80% ProShares UltraPro S&P500 (UPRO)	TMF: -6.03%, UPRO: -0.82%	-2.97%
12	Dec-10	Dec-10	1	42.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.25% ProShares UltraPro S&P500 (UPRO)	TMF: -11.63%, UPRO: 21.36%	7.26%
13	Jan-11	Jan-11	1	19.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 80.56% ProShares UltraPro S&P500 (UPRO)	TMF: -9.40%, UPRO: 6.56%	3.46%
14	Feb-11	Feb-11	1	43.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.92% ProShares UltraPro S&P500 (UPRO)	TMF: 4.49%, UPRO: 10.39%	7.85%
15	Mar-11	Mar-11	1	48.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.21% ProShares UltraPro S&P500 (UPRO)	TMF: -0.55%, UPRO: -0.80%	-0.68%
16	Apr-11	Apr-11	1	54.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.30% ProShares UltraPro S&P500 (UPRO)	TMF: 6.57%, UPRO: 8.73%	7.55%
17	May-11	May-11	1	43.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.27% ProShares UltraPro S&P500 (UPRO)	TMF: 10.36%, UPRO: -3.93%	2.32%
18	Jun-11	Jun-11	1	52.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.21% ProShares UltraPro S&P500 (UPRO)	TMF: -7.39%, UPRO: -5.87%	-6.68%
19	Jul-11	Jul-11	1	54.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.63% ProShares UltraPro S&P500 (UPRO)	TMF: 13.28%, UPRO: -6.39%	4.30%
20	Aug-11	Aug-11	1	49.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.80% ProShares UltraPro S&P500 (UPRO)	TMF: 27.34%, UPRO: -21.09%	2.74%
21	Sep-11	Sep-11	1	57.66% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.34% ProShares UltraPro S&P500 (UPRO)	TMF: 41.35%, UPRO: -20.69%	15.09%
22	Oct-11	Oct-11	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: -12.87%, UPRO: 32.61%	9.41%
23	Nov-11	Nov-11	1	50.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.38% ProShares UltraPro S&P500 (UPRO)	TMF: 4.89%, UPRO: -3.35%	0.82%
24	Dec-11	Dec-11	1	62.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.47% ProShares UltraPro S&P500 (UPRO)	TMF: 9.46%, UPRO: 2.30%	6.78%
25	Jan-12	Jan-12	1	49.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.82% ProShares UltraPro S&P500 (UPRO)	TMF: -1.50%, UPRO: 13.90%	6.33%
26	Feb-12	Feb-12	1	36.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.61% ProShares UltraPro S&P500 (UPRO)	TMF: -7.95%, UPRO: 13.24%	5.53%
27	Mar-12	Mar-12	1	36.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.24% ProShares UltraPro S&P500 (UPRO)	TMF: -13.02%, UPRO: 9.29%	1.09%
28	Apr-12	Apr-12	1	42.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.31% ProShares UltraPro S&P500 (UPRO)	TMF: 14.37%, UPRO: -2.38%	4.77%
29	May-12	May-12	1	49.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.62% ProShares UltraPro S&P500 (UPRO)	TMF: 28.90%, UPRO: -17.35%	5.49%
30	Jun-12	Jun-12	1	50.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.95% ProShares UltraPro S&P500 (UPRO)	TMF: -5.78%, UPRO: 11.47%	2.84%
31	Jul-12	Jul-12	1	56.25% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.75% ProShares UltraPro S&P500 (UPRO)	TMF: 11.43%, UPRO: 3.52%	7.97%
32	Aug-12	Aug-12	1	54.92% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.08% ProShares UltraPro S&P500 (UPRO)	TMF: -4.61%, UPRO: 6.53%	0.41%
33	Sep-12	Sep-12	1	31.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 68.70% ProShares UltraPro S&P500 (UPRO)	TMF: -7.87%, UPRO: 7.52%	2.70%
34	Oct-12	Oct-12	1	41.78% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.22% ProShares UltraPro S&P500 (UPRO)	TMF: -2.13%, UPRO: -5.96%	-4.36%
35	Nov-12	Nov-12	1	43.27% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.73% ProShares UltraPro S&P500 (UPRO)	TMF: 3.90%, UPRO: 1.01%	2.26%
36	Dec-12	Dec-12	1	58.60% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.40% ProShares UltraPro S&P500 (UPRO)	TMF: -7.80%, UPRO: 2.82%	-3.41%
37	Jan-13	Jan-13	1	49.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.95% ProShares UltraPro S&P500 (UPRO)	TMF: -9.58%, UPRO: 15.39%	3.14%
38	Feb-13	Feb-13	1	35.55% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.45% ProShares UltraPro S&P500 (UPRO)	TMF: 3.39%, UPRO: 3.56%	3.50%
39	Mar-13	Mar-13	1	51.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.14% ProShares UltraPro S&P500 (UPRO)	TMF: -1.77%, UPRO: 11.03%	4.39%
40	Apr-13	Apr-13	1	42.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.81% ProShares UltraPro S&P500 (UPRO)	TMF: 14.25%, UPRO: 5.45%	9.16%
41	May-13	May-13	1	52.48% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.52% ProShares UltraPro S&P500 (UPRO)	TMF: -19.65%, UPRO: 6.80%	-7.08%
42	Jun-13	Jun-13	1	37.97% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.03% ProShares UltraPro S&P500 (UPRO)	TMF: -10.33%, UPRO: -5.23%	-7.17%
43	Jul-13	Jul-13	1	51.09% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.91% ProShares UltraPro S&P500 (UPRO)	TMF: -7.41%, UPRO: 16.41%	4.24%
44	Aug-13	Aug-13	1	30.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 69.65% ProShares UltraPro S&P500 (UPRO)	TMF: -4.47%, UPRO: -9.21%	-7.77%
45	Sep-13	Sep-13	1	42.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.14% ProShares UltraPro S&P500 (UPRO)	TMF: 1.53%, UPRO: 9.60%	6.14%
46	Oct-13	Oct-13	1	42.91% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.09% ProShares UltraPro S&P500 (UPRO)	TMF: 4.12%, UPRO: 13.76%	9.62%
47	Nov-13	Nov-13	1	57.93% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.07% ProShares UltraPro S&P500 (UPRO)	TMF: -8.19%, UPRO: 8.87%	-1.01%
48	Dec-13	Dec-13	1	38.84% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.16% ProShares UltraPro S&P500 (UPRO)	TMF: -6.01%, UPRO: 7.54%	2.27%
49	Jan-14	Jan-14	1	50.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.99% ProShares UltraPro S&P500 (UPRO)	TMF: 19.47%, UPRO: -10.72%	4.38%
50	Feb-14	Feb-14	1	60.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.71% ProShares UltraPro S&P500 (UPRO)	TMF: 1.63%, UPRO: 13.65%	6.41%
51	Mar-14	Mar-14	1	57.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.00% ProShares UltraPro S&P500 (UPRO)	TMF: 1.76%, UPRO: 2.15%	1.93%
52	Apr-14	Apr-14	1	46.02% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.98% ProShares UltraPro S&P500 (UPRO)	TMF: 5.96%, UPRO: 1.65%	3.63%
53	May-14	May-14	1	61.81% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 38.19% ProShares UltraPro S&P500 (UPRO)	TMF: 8.79%, UPRO: 6.62%	7.97%
54	Jun-14	Jun-14	1	45.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 54.06% ProShares UltraPro S&P500 (UPRO)	TMF: -1.00%, UPRO: 6.22%	2.91%
55	Jul-14	Jul-14	1	37.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.61% ProShares UltraPro S&P500 (UPRO)	TMF: 1.61%, UPRO: -4.44%	-2.18%
56	Aug-14	Aug-14	1	50.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.97% ProShares UltraPro S&P500 (UPRO)	TMF: 14.42%, UPRO: 11.95%	13.19%
57	Sep-14	Sep-14	1	46.85% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.15% ProShares UltraPro S&P500 (UPRO)	TMF: -6.65%, UPRO: -4.44%	-5.47%
58	Oct-14	Oct-14	1	48.11% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.89% ProShares UltraPro S&P500 (UPRO)	TMF: 8.06%, UPRO: 6.03%	7.01%
59	Nov-14	Nov-14	1	65.87% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.13% ProShares UltraPro S&P500 (UPRO)	TMF: 9.08%, UPRO: 8.34%	8.83%
60	Dec-14	Dec-14	1	39.32% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.68% ProShares UltraPro S&P500 (UPRO)	TMF: 9.38%, UPRO: -1.54%	2.76%
61	Jan-15	Jan-15	1	52.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.69% ProShares UltraPro S&P500 (UPRO)	TMF: 31.01%, UPRO: -9.47%	11.70%
62	Feb-15	Feb-15	1	49.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.21% ProShares UltraPro S&P500 (UPRO)	TMF: -17.87%, UPRO: 17.48%	-0.12%
63	Mar-15	Mar-15	1	39.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.92% ProShares UltraPro S&P500 (UPRO)	TMF: 2.57%, UPRO: -5.28%	-2.21%
64	Apr-15	Apr-15	1	48.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.94% ProShares UltraPro S&P500 (UPRO)	TMF: -10.30%, UPRO: 2.59%	-3.60%
65	May-15	May-15	1	40.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.55% ProShares UltraPro S&P500 (UPRO)	TMF: -7.91%, UPRO: 3.43%	-1.16%
66	Jun-15	Jun-15	1	36.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.56% ProShares UltraPro S&P500 (UPRO)	TMF: -12.49%, UPRO: -6.21%	-8.50%
67	Jul-15	Jul-15	1	38.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.70% ProShares UltraPro S&P500 (UPRO)	TMF: 13.40%, UPRO: 6.17%	8.94%
68	Aug-15	Aug-15	1	44.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.54% ProShares UltraPro S&P500 (UPRO)	TMF: -2.75%, UPRO: -18.87%	-11.70%
69	Sep-15	Sep-15	1	64.23% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 35.77% ProShares UltraPro S&P500 (UPRO)	TMF: 5.10%, UPRO: -8.64%	0.19%
70	Oct-15	Oct-15	1	55.52% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.48% ProShares UltraPro S&P500 (UPRO)	TMF: -1.73%, UPRO: 26.79%	10.95%
71	Nov-15	Nov-15	1	52.98% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.02% ProShares UltraPro S&P500 (UPRO)	TMF: -2.71%, UPRO: 0.81%	-1.05%
72	Dec-15	Dec-15	1	60.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.65% ProShares UltraPro S&P500 (UPRO)	TMF: -2.41%, UPRO: -6.06%	-3.85%
73	Jan-16	Jan-16	1	53.74% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 46.26% ProShares UltraPro S&P500 (UPRO)	TMF: 17.74%, UPRO: -15.38%	2.42%
74	Feb-16	Feb-16	1	65.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.47% ProShares UltraPro S&P500 (UPRO)	TMF: 8.71%, UPRO: -1.68%	5.13%
75	Mar-16	Mar-16	1	55.95% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.05% ProShares UltraPro S&P500 (UPRO)	TMF: -0.64%, UPRO: 21.50%	9.11%
76	Apr-16	Apr-16	1	46.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.25% ProShares UltraPro S&P500 (UPRO)	TMF: -2.39%, UPRO: 0.81%	-0.69%
77	May-16	May-16	1	49.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.93% ProShares UltraPro S&P500 (UPRO)	TMF: 1.86%, UPRO: 4.65%	3.28%
78	Jun-16	Jun-16	1	52.56% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.44% ProShares UltraPro S&P500 (UPRO)	TMF: 21.23%, UPRO: -0.20%	11.06%
79	Jul-16	Jul-16	1	55.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.62% ProShares UltraPro S&P500 (UPRO)	TMF: 6.07%, UPRO: 11.13%	8.33%
80	Aug-16	Aug-16	1	35.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.82% ProShares UltraPro S&P500 (UPRO)	TMF: -3.58%, UPRO: 0.11%	-1.19%
81	Sep-16	Sep-16	1	32.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.59% ProShares UltraPro S&P500 (UPRO)	TMF: -4.78%, UPRO: -0.54%	-1.91%
82	Oct-16	Oct-16	1	54.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.37% ProShares UltraPro S&P500 (UPRO)	TMF: -13.32%, UPRO: -5.62%	-9.83%
83	Nov-16	Nov-16	1	42.64% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.36% ProShares UltraPro S&P500 (UPRO)	TMF: -23.91%, UPRO: 11.05%	-3.85%
84	Dec-16	Dec-16	1	35.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.33% ProShares UltraPro S&P500 (UPRO)	TMF: -0.99%, UPRO: 5.96%	3.48%
85	Jan-17	Jan-17	1	42.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 5.14%	3.57%
86	Feb-17	Feb-17	1	33.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.59% ProShares UltraPro S&P500 (UPRO)	TMF: 4.41%, UPRO: 11.91%	9.40%
87	Mar-17	Mar-17	1	29.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 70.27% ProShares UltraPro S&P500 (UPRO)	TMF: -2.35%, UPRO: -0.22%	-0.85%
88	Apr-17	Apr-17	1	41.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.43%, UPRO: 2.77%	3.46%
89	May-17	May-17	1	42.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.93% ProShares UltraPro S&P500 (UPRO)	TMF: 5.17%, UPRO: 3.70%	4.32%
90	Jun-17	Jun-17	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: 1.98%, UPRO: 1.51%	1.75%
91	Jul-17	Jul-17	1	43.43% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.57% ProShares UltraPro S&P500 (UPRO)	TMF: -2.43%, UPRO: 5.87%	2.27%
92	Aug-17	Aug-17	1	38.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.55% ProShares UltraPro S&P500 (UPRO)	TMF: 10.13%, UPRO: 0.21%	4.02%
93	Sep-17	Sep-17	1	57.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.54% ProShares UltraPro S&P500 (UPRO)	TMF: -7.29%, UPRO: 5.69%	-1.77%
94	Oct-17	Oct-17	1	33.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.94% ProShares UltraPro S&P500 (UPRO)	TMF: -0.53%, UPRO: 6.83%	4.40%
95	Nov-17	Nov-17	1	38.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.73%, UPRO: 8.87%	6.09%
96	Dec-17	Dec-17	1	39.80% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.20% ProShares UltraPro S&P500 (UPRO)	TMF: 5.04%, UPRO: 3.45%	4.09%
97	Jan-18	Jan-18	1	32.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.21% ProShares UltraPro S&P500 (UPRO)	TMF: -9.77%, UPRO: 18.22%	9.04%
98	Feb-18	Feb-18	1	49.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.60% ProShares UltraPro S&P500 (UPRO)	TMF: -9.57%, UPRO: -13.53%	-11.58%
99	Mar-18	Mar-18	1	69.21% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.79% ProShares UltraPro S&P500 (UPRO)	TMF: 8.44%, UPRO: -8.69%	3.17%
100	Apr-18	Apr-18	1	70.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.00% ProShares UltraPro S&P500 (UPRO)	TMF: -6.71%, UPRO: -0.14%	-4.74%
101	May-18	May-18	1	62.72% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.28% ProShares UltraPro S&P500 (UPRO)	TMF: 5.27%, UPRO: 6.46%	5.71%
102	Jun-18	Jun-18	1	47.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 52.81% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 1.29%	1.38%
103	Jul-18	Jul-18	1	48.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.37% ProShares UltraPro S&P500 (UPRO)	TMF: -4.70%, UPRO: 10.73%	3.23%
104	Aug-18	Aug-18	1	51.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.81% ProShares UltraPro S&P500 (UPRO)	TMF: 3.36%, UPRO: 9.09%	6.16%
105	Sep-18	Sep-18	1	51.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.27% ProShares UltraPro S&P500 (UPRO)	TMF: -8.77%, UPRO: 1.20%	-3.96%
106	Oct-18	Oct-18	1	42.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.38% ProShares UltraPro S&P500 (UPRO)	TMF: -9.11%, UPRO: -20.78%	-15.81%
107	Nov-18	Nov-18	1	72.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 27.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.76%, UPRO: 4.28%	4.63%
108	Dec-18	Dec-18	1	73.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 26.87% ProShares UltraPro S&P500 (UPRO)	TMF: 17.93%, UPRO: -26.25%	6.06%
109	Jan-19	Jan-19	1	74.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 25.24% ProShares UltraPro S&P500 (UPRO)	TMF: 0.41%, UPRO: 23.89%	6.34%
110	Feb-19	Feb-19	1	68.65% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 31.35% ProShares UltraPro S&P500 (UPRO)	TMF: -4.52%, UPRO: 9.28%	-0.20%
111	Mar-19	Mar-19	1	49.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.33% ProShares UltraPro S&P500 (UPRO)	TMF: 17.00%, UPRO: 4.85%	10.88%
112	Apr-19	Apr-19	1	58.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.30% ProShares UltraPro S&P500 (UPRO)	TMF: -6.56%, UPRO: 11.81%	1.03%
113	May-19	May-19	1	40.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.65% ProShares UltraPro S&P500 (UPRO)	TMF: 21.11%, UPRO: -18.89%	-2.75%
114	Jun-19	Jun-19	1	65.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.87% ProShares UltraPro S&P500 (UPRO)	TMF: 1.90%, UPRO: 21.37%	8.69%
115	Jul-19	Jul-19	1	52.22% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.78% ProShares UltraPro S&P500 (UPRO)	-	-
Its kind off crazy how these allocations jump all over the place. I tried to look at the details to see if I could see any trends as to whether when the allocation to URPO or TMF increases over the peior month if the fund is more likely to see a bump in return and I can't find anything. It just seems really random. I must be missing something.

I'm torn right now between Quarterly rebalance to 40/60 (or 50/50) UPRO or use this 20 day backlook. Again, backtesting looks great, but trying to figure out if there is actually something to this madness :) Or does the volatility shift so quickly that looking back 20 days is pointless so its better to look at aggregate volatility.
Last edited by caklim00 on Fri Jul 26, 2019 10:57 am, edited 2 times in total.
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

Interesting paper showing how volatility targeting failed in the size and value factor cases, since these have more stable volatility.

http://apps.olin.wustl.edu/faculty/zhou ... l_2018.pdf
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

caklim00 wrote: Fri Jul 26, 2019 9:21 am Running the 20 day backlook procedure:
1: PV website, click on Adaptive Allocation under Timing Models (bottom right)
2: Add your tickers (only use 2 for now)
3: Set Volatility Period to Specify and then manually enter 20 days
4: Monthly rebalance
5: Run the test
6: Under results, click Timing Periods tab
7: Scroll to the very bottom and it'll show you the allocation based on the current signal date, as well as the raw volatility of each fund

Code: Select all

#	Start	End	Months	Assets	Asset Performance	Timing Portfolio
1	Jan-10	Jan-10	1	42.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.70% ProShares UltraPro S&P500 (UPRO)	TMF: 7.34%, UPRO: -11.19%	-3.35%
2	Feb-10	Feb-10	1	56.04% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.96% ProShares UltraPro S&P500 (UPRO)	TMF: -1.82%, UPRO: 8.94%	2.91%
3	Mar-10	Mar-10	1	56.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.69% ProShares UltraPro S&P500 (UPRO)	TMF: -6.73%, UPRO: 18.90%	4.47%
4	Apr-10	Apr-10	1	41.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.31% ProShares UltraPro S&P500 (UPRO)	TMF: 9.96%, UPRO: 4.08%	6.53%
5	May-10	May-10	1	54.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.97% ProShares UltraPro S&P500 (UPRO)	TMF: 16.54%, UPRO: -24.15%	-2.17%
6	Jun-10	Jun-10	1	57.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.63% ProShares UltraPro S&P500 (UPRO)	TMF: 16.73%, UPRO: -16.58%	2.53%
7	Jul-10	Jul-10	1	59.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 40.92% ProShares UltraPro S&P500 (UPRO)	TMF: -3.90%, UPRO: 21.17%	6.36%
8	Aug-10	Aug-10	1	57.16% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.84% ProShares UltraPro S&P500 (UPRO)	TMF: 25.94%, UPRO: -13.46%	9.06%
9	Sep-10	Sep-10	1	44.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.71% ProShares UltraPro S&P500 (UPRO)	TMF: -9.02%, UPRO: 27.94%	11.57%
10	Oct-10	Oct-10	1	40.82% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.18% ProShares UltraPro S&P500 (UPRO)	TMF: -13.57%, UPRO: 11.44%	1.23%
11	Nov-10	Nov-10	1	41.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.80% ProShares UltraPro S&P500 (UPRO)	TMF: -6.03%, UPRO: -0.82%	-2.97%
12	Dec-10	Dec-10	1	42.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.25% ProShares UltraPro S&P500 (UPRO)	TMF: -11.63%, UPRO: 21.36%	7.26%
13	Jan-11	Jan-11	1	19.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 80.56% ProShares UltraPro S&P500 (UPRO)	TMF: -9.40%, UPRO: 6.56%	3.46%
14	Feb-11	Feb-11	1	43.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.92% ProShares UltraPro S&P500 (UPRO)	TMF: 4.49%, UPRO: 10.39%	7.85%
15	Mar-11	Mar-11	1	48.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.21% ProShares UltraPro S&P500 (UPRO)	TMF: -0.55%, UPRO: -0.80%	-0.68%
16	Apr-11	Apr-11	1	54.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.30% ProShares UltraPro S&P500 (UPRO)	TMF: 6.57%, UPRO: 8.73%	7.55%
17	May-11	May-11	1	43.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.27% ProShares UltraPro S&P500 (UPRO)	TMF: 10.36%, UPRO: -3.93%	2.32%
18	Jun-11	Jun-11	1	52.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.21% ProShares UltraPro S&P500 (UPRO)	TMF: -7.39%, UPRO: -5.87%	-6.68%
19	Jul-11	Jul-11	1	54.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.63% ProShares UltraPro S&P500 (UPRO)	TMF: 13.28%, UPRO: -6.39%	4.30%
20	Aug-11	Aug-11	1	49.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.80% ProShares UltraPro S&P500 (UPRO)	TMF: 27.34%, UPRO: -21.09%	2.74%
21	Sep-11	Sep-11	1	57.66% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.34% ProShares UltraPro S&P500 (UPRO)	TMF: 41.35%, UPRO: -20.69%	15.09%
22	Oct-11	Oct-11	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: -12.87%, UPRO: 32.61%	9.41%
23	Nov-11	Nov-11	1	50.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.38% ProShares UltraPro S&P500 (UPRO)	TMF: 4.89%, UPRO: -3.35%	0.82%
24	Dec-11	Dec-11	1	62.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.47% ProShares UltraPro S&P500 (UPRO)	TMF: 9.46%, UPRO: 2.30%	6.78%
25	Jan-12	Jan-12	1	49.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.82% ProShares UltraPro S&P500 (UPRO)	TMF: -1.50%, UPRO: 13.90%	6.33%
26	Feb-12	Feb-12	1	36.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.61% ProShares UltraPro S&P500 (UPRO)	TMF: -7.95%, UPRO: 13.24%	5.53%
27	Mar-12	Mar-12	1	36.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.24% ProShares UltraPro S&P500 (UPRO)	TMF: -13.02%, UPRO: 9.29%	1.09%
28	Apr-12	Apr-12	1	42.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.31% ProShares UltraPro S&P500 (UPRO)	TMF: 14.37%, UPRO: -2.38%	4.77%
29	May-12	May-12	1	49.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.62% ProShares UltraPro S&P500 (UPRO)	TMF: 28.90%, UPRO: -17.35%	5.49%
30	Jun-12	Jun-12	1	50.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.95% ProShares UltraPro S&P500 (UPRO)	TMF: -5.78%, UPRO: 11.47%	2.84%
31	Jul-12	Jul-12	1	56.25% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.75% ProShares UltraPro S&P500 (UPRO)	TMF: 11.43%, UPRO: 3.52%	7.97%
32	Aug-12	Aug-12	1	54.92% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.08% ProShares UltraPro S&P500 (UPRO)	TMF: -4.61%, UPRO: 6.53%	0.41%
33	Sep-12	Sep-12	1	31.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 68.70% ProShares UltraPro S&P500 (UPRO)	TMF: -7.87%, UPRO: 7.52%	2.70%
34	Oct-12	Oct-12	1	41.78% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.22% ProShares UltraPro S&P500 (UPRO)	TMF: -2.13%, UPRO: -5.96%	-4.36%
35	Nov-12	Nov-12	1	43.27% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.73% ProShares UltraPro S&P500 (UPRO)	TMF: 3.90%, UPRO: 1.01%	2.26%
36	Dec-12	Dec-12	1	58.60% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.40% ProShares UltraPro S&P500 (UPRO)	TMF: -7.80%, UPRO: 2.82%	-3.41%
37	Jan-13	Jan-13	1	49.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.95% ProShares UltraPro S&P500 (UPRO)	TMF: -9.58%, UPRO: 15.39%	3.14%
38	Feb-13	Feb-13	1	35.55% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.45% ProShares UltraPro S&P500 (UPRO)	TMF: 3.39%, UPRO: 3.56%	3.50%
39	Mar-13	Mar-13	1	51.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.14% ProShares UltraPro S&P500 (UPRO)	TMF: -1.77%, UPRO: 11.03%	4.39%
40	Apr-13	Apr-13	1	42.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.81% ProShares UltraPro S&P500 (UPRO)	TMF: 14.25%, UPRO: 5.45%	9.16%
41	May-13	May-13	1	52.48% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.52% ProShares UltraPro S&P500 (UPRO)	TMF: -19.65%, UPRO: 6.80%	-7.08%
42	Jun-13	Jun-13	1	37.97% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.03% ProShares UltraPro S&P500 (UPRO)	TMF: -10.33%, UPRO: -5.23%	-7.17%
43	Jul-13	Jul-13	1	51.09% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.91% ProShares UltraPro S&P500 (UPRO)	TMF: -7.41%, UPRO: 16.41%	4.24%
44	Aug-13	Aug-13	1	30.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 69.65% ProShares UltraPro S&P500 (UPRO)	TMF: -4.47%, UPRO: -9.21%	-7.77%
45	Sep-13	Sep-13	1	42.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.14% ProShares UltraPro S&P500 (UPRO)	TMF: 1.53%, UPRO: 9.60%	6.14%
46	Oct-13	Oct-13	1	42.91% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.09% ProShares UltraPro S&P500 (UPRO)	TMF: 4.12%, UPRO: 13.76%	9.62%
47	Nov-13	Nov-13	1	57.93% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.07% ProShares UltraPro S&P500 (UPRO)	TMF: -8.19%, UPRO: 8.87%	-1.01%
48	Dec-13	Dec-13	1	38.84% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.16% ProShares UltraPro S&P500 (UPRO)	TMF: -6.01%, UPRO: 7.54%	2.27%
49	Jan-14	Jan-14	1	50.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.99% ProShares UltraPro S&P500 (UPRO)	TMF: 19.47%, UPRO: -10.72%	4.38%
50	Feb-14	Feb-14	1	60.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.71% ProShares UltraPro S&P500 (UPRO)	TMF: 1.63%, UPRO: 13.65%	6.41%
51	Mar-14	Mar-14	1	57.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.00% ProShares UltraPro S&P500 (UPRO)	TMF: 1.76%, UPRO: 2.15%	1.93%
52	Apr-14	Apr-14	1	46.02% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.98% ProShares UltraPro S&P500 (UPRO)	TMF: 5.96%, UPRO: 1.65%	3.63%
53	May-14	May-14	1	61.81% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 38.19% ProShares UltraPro S&P500 (UPRO)	TMF: 8.79%, UPRO: 6.62%	7.97%
54	Jun-14	Jun-14	1	45.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 54.06% ProShares UltraPro S&P500 (UPRO)	TMF: -1.00%, UPRO: 6.22%	2.91%
55	Jul-14	Jul-14	1	37.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.61% ProShares UltraPro S&P500 (UPRO)	TMF: 1.61%, UPRO: -4.44%	-2.18%
56	Aug-14	Aug-14	1	50.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.97% ProShares UltraPro S&P500 (UPRO)	TMF: 14.42%, UPRO: 11.95%	13.19%
57	Sep-14	Sep-14	1	46.85% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.15% ProShares UltraPro S&P500 (UPRO)	TMF: -6.65%, UPRO: -4.44%	-5.47%
58	Oct-14	Oct-14	1	48.11% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.89% ProShares UltraPro S&P500 (UPRO)	TMF: 8.06%, UPRO: 6.03%	7.01%
59	Nov-14	Nov-14	1	65.87% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.13% ProShares UltraPro S&P500 (UPRO)	TMF: 9.08%, UPRO: 8.34%	8.83%
60	Dec-14	Dec-14	1	39.32% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.68% ProShares UltraPro S&P500 (UPRO)	TMF: 9.38%, UPRO: -1.54%	2.76%
61	Jan-15	Jan-15	1	52.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.69% ProShares UltraPro S&P500 (UPRO)	TMF: 31.01%, UPRO: -9.47%	11.70%
62	Feb-15	Feb-15	1	49.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.21% ProShares UltraPro S&P500 (UPRO)	TMF: -17.87%, UPRO: 17.48%	-0.12%
63	Mar-15	Mar-15	1	39.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.92% ProShares UltraPro S&P500 (UPRO)	TMF: 2.57%, UPRO: -5.28%	-2.21%
64	Apr-15	Apr-15	1	48.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.94% ProShares UltraPro S&P500 (UPRO)	TMF: -10.30%, UPRO: 2.59%	-3.60%
65	May-15	May-15	1	40.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.55% ProShares UltraPro S&P500 (UPRO)	TMF: -7.91%, UPRO: 3.43%	-1.16%
66	Jun-15	Jun-15	1	36.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.56% ProShares UltraPro S&P500 (UPRO)	TMF: -12.49%, UPRO: -6.21%	-8.50%
67	Jul-15	Jul-15	1	38.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.70% ProShares UltraPro S&P500 (UPRO)	TMF: 13.40%, UPRO: 6.17%	8.94%
68	Aug-15	Aug-15	1	44.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.54% ProShares UltraPro S&P500 (UPRO)	TMF: -2.75%, UPRO: -18.87%	-11.70%
69	Sep-15	Sep-15	1	64.23% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 35.77% ProShares UltraPro S&P500 (UPRO)	TMF: 5.10%, UPRO: -8.64%	0.19%
70	Oct-15	Oct-15	1	55.52% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.48% ProShares UltraPro S&P500 (UPRO)	TMF: -1.73%, UPRO: 26.79%	10.95%
71	Nov-15	Nov-15	1	52.98% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.02% ProShares UltraPro S&P500 (UPRO)	TMF: -2.71%, UPRO: 0.81%	-1.05%
72	Dec-15	Dec-15	1	60.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.65% ProShares UltraPro S&P500 (UPRO)	TMF: -2.41%, UPRO: -6.06%	-3.85%
73	Jan-16	Jan-16	1	53.74% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 46.26% ProShares UltraPro S&P500 (UPRO)	TMF: 17.74%, UPRO: -15.38%	2.42%
74	Feb-16	Feb-16	1	65.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.47% ProShares UltraPro S&P500 (UPRO)	TMF: 8.71%, UPRO: -1.68%	5.13%
75	Mar-16	Mar-16	1	55.95% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.05% ProShares UltraPro S&P500 (UPRO)	TMF: -0.64%, UPRO: 21.50%	9.11%
76	Apr-16	Apr-16	1	46.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.25% ProShares UltraPro S&P500 (UPRO)	TMF: -2.39%, UPRO: 0.81%	-0.69%
77	May-16	May-16	1	49.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.93% ProShares UltraPro S&P500 (UPRO)	TMF: 1.86%, UPRO: 4.65%	3.28%
78	Jun-16	Jun-16	1	52.56% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.44% ProShares UltraPro S&P500 (UPRO)	TMF: 21.23%, UPRO: -0.20%	11.06%
79	Jul-16	Jul-16	1	55.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.62% ProShares UltraPro S&P500 (UPRO)	TMF: 6.07%, UPRO: 11.13%	8.33%
80	Aug-16	Aug-16	1	35.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.82% ProShares UltraPro S&P500 (UPRO)	TMF: -3.58%, UPRO: 0.11%	-1.19%
81	Sep-16	Sep-16	1	32.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.59% ProShares UltraPro S&P500 (UPRO)	TMF: -4.78%, UPRO: -0.54%	-1.91%
82	Oct-16	Oct-16	1	54.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.37% ProShares UltraPro S&P500 (UPRO)	TMF: -13.32%, UPRO: -5.62%	-9.83%
83	Nov-16	Nov-16	1	42.64% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.36% ProShares UltraPro S&P500 (UPRO)	TMF: -23.91%, UPRO: 11.05%	-3.85%
84	Dec-16	Dec-16	1	35.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.33% ProShares UltraPro S&P500 (UPRO)	TMF: -0.99%, UPRO: 5.96%	3.48%
85	Jan-17	Jan-17	1	42.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 5.14%	3.57%
86	Feb-17	Feb-17	1	33.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.59% ProShares UltraPro S&P500 (UPRO)	TMF: 4.41%, UPRO: 11.91%	9.40%
87	Mar-17	Mar-17	1	29.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 70.27% ProShares UltraPro S&P500 (UPRO)	TMF: -2.35%, UPRO: -0.22%	-0.85%
88	Apr-17	Apr-17	1	41.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.43%, UPRO: 2.77%	3.46%
89	May-17	May-17	1	42.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.93% ProShares UltraPro S&P500 (UPRO)	TMF: 5.17%, UPRO: 3.70%	4.32%
90	Jun-17	Jun-17	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: 1.98%, UPRO: 1.51%	1.75%
91	Jul-17	Jul-17	1	43.43% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.57% ProShares UltraPro S&P500 (UPRO)	TMF: -2.43%, UPRO: 5.87%	2.27%
92	Aug-17	Aug-17	1	38.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.55% ProShares UltraPro S&P500 (UPRO)	TMF: 10.13%, UPRO: 0.21%	4.02%
93	Sep-17	Sep-17	1	57.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.54% ProShares UltraPro S&P500 (UPRO)	TMF: -7.29%, UPRO: 5.69%	-1.77%
94	Oct-17	Oct-17	1	33.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.94% ProShares UltraPro S&P500 (UPRO)	TMF: -0.53%, UPRO: 6.83%	4.40%
95	Nov-17	Nov-17	1	38.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.73%, UPRO: 8.87%	6.09%
96	Dec-17	Dec-17	1	39.80% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.20% ProShares UltraPro S&P500 (UPRO)	TMF: 5.04%, UPRO: 3.45%	4.09%
97	Jan-18	Jan-18	1	32.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.21% ProShares UltraPro S&P500 (UPRO)	TMF: -9.77%, UPRO: 18.22%	9.04%
98	Feb-18	Feb-18	1	49.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.60% ProShares UltraPro S&P500 (UPRO)	TMF: -9.57%, UPRO: -13.53%	-11.58%
99	Mar-18	Mar-18	1	69.21% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.79% ProShares UltraPro S&P500 (UPRO)	TMF: 8.44%, UPRO: -8.69%	3.17%
100	Apr-18	Apr-18	1	70.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.00% ProShares UltraPro S&P500 (UPRO)	TMF: -6.71%, UPRO: -0.14%	-4.74%
101	May-18	May-18	1	62.72% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.28% ProShares UltraPro S&P500 (UPRO)	TMF: 5.27%, UPRO: 6.46%	5.71%
102	Jun-18	Jun-18	1	47.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 52.81% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 1.29%	1.38%
103	Jul-18	Jul-18	1	48.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.37% ProShares UltraPro S&P500 (UPRO)	TMF: -4.70%, UPRO: 10.73%	3.23%
104	Aug-18	Aug-18	1	51.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.81% ProShares UltraPro S&P500 (UPRO)	TMF: 3.36%, UPRO: 9.09%	6.16%
105	Sep-18	Sep-18	1	51.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.27% ProShares UltraPro S&P500 (UPRO)	TMF: -8.77%, UPRO: 1.20%	-3.96%
106	Oct-18	Oct-18	1	42.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.38% ProShares UltraPro S&P500 (UPRO)	TMF: -9.11%, UPRO: -20.78%	-15.81%
107	Nov-18	Nov-18	1	72.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 27.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.76%, UPRO: 4.28%	4.63%
108	Dec-18	Dec-18	1	73.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 26.87% ProShares UltraPro S&P500 (UPRO)	TMF: 17.93%, UPRO: -26.25%	6.06%
109	Jan-19	Jan-19	1	74.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 25.24% ProShares UltraPro S&P500 (UPRO)	TMF: 0.41%, UPRO: 23.89%	6.34%
110	Feb-19	Feb-19	1	68.65% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 31.35% ProShares UltraPro S&P500 (UPRO)	TMF: -4.52%, UPRO: 9.28%	-0.20%
111	Mar-19	Mar-19	1	49.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.33% ProShares UltraPro S&P500 (UPRO)	TMF: 17.00%, UPRO: 4.85%	10.88%
112	Apr-19	Apr-19	1	58.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.30% ProShares UltraPro S&P500 (UPRO)	TMF: -6.56%, UPRO: 11.81%	1.03%
113	May-19	May-19	1	40.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.65% ProShares UltraPro S&P500 (UPRO)	TMF: 21.11%, UPRO: -18.89%	-2.75%
114	Jun-19	Jun-19	1	65.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.87% ProShares UltraPro S&P500 (UPRO)	TMF: 1.90%, UPRO: 21.37%	8.69%
115	Jul-19	Jul-19	1	52.22% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.78% ProShares UltraPro S&P500 (UPRO)	-	-
Its kind off crazy how these allocations jump all over the place. I tried to look at the details to see if I could see any trends as to whether when the allocation to URPO or TMF increases over the peior month if the fund is more likely to see a bump in return and I can't find anything. It just seems really random. I must be missing something.

I'm torn right now between Quarterly rebalance to 40/60 (or 50/50) UPRO or use this 20 day backlook. Again, backtesting looks great, but trying to figure out if there is actually something to this madness :) Or does the volatility shift so quickly that looking back 20 days is pointless so its better to look at aggregate volatility.
Their performance (40/60 quarterly vs. this) are almost identical from 1987 to 2007. From 2007-2012 they are close, but the market-timing has a smaller drawdown. From 2012-present the 20-day look-back has some sizeable outperformance, very similar to how 55/45 UPRO/TMF quarterly would've performed. Seems this is simply due to a calm bull-market resulting in a higher allocation to UPRO. This outperformance may not be as meaningful though if a sudden decline wipes you out :). Certainly an interesting decision and there may be less regret using a fixed AA and rebalance period.

I personally wouldn't want to be 50/50 UPRO/TMF; I would rather stay around 40% and if I wanted to skew away from risk-parity (more risk on the equity side) I would just replace some TMF with EDV. This is effectively the same as going 50/50 but with a 20% reduction in overall leverage.
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Steve Reading
Posts: 2876
Joined: Fri Nov 16, 2018 10:20 pm

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

Post by Steve Reading »

coingaroo wrote: Fri Jul 26, 2019 6:51 am
305pelusa wrote: Thu Jul 25, 2019 5:02 pm To the people using recent-volatility (like previous 20 days) to dynamically shift your allocations, please answer the following:

It is well-documented that market daily returns are not normally distributed. Not even close. The St. Dev. (as a measure of risk) is quite literally a meaningless number for a non-normal distribution.

Over longer horizons (years), the Central Limit Theorem dictates that the return distributions will be approximately normal (even though it is constituted by non-normal daily distributions... that's where the CLT comes in). So over long time horizons, St. Dev does start to make sense. The OP's choice of using long-term volatility is on the right track and theoretically sound IMO.

Knowing this, what makes you think it is prudent in any way to use such a short-term window of standard deviation?

And no "it backtested well!" answers. I'm looking for an actual theoretical or intuitive explanation as to why you think it makes sense.

Thanks.
Volatility is time varying throughout markets, due to factors like monetary policies of central banks. Hence, a portfolio experiences different levels of volatility over time. By targeting volatility to one level, you take on the same consistent level risk over time. Because volatility drag is a function of volatility and not directly leverage, it means that if you reduce leverage when volatility is high, you reduce volatility drag's impact on returns, and conversely, you allow yourself to leverage more when the volatility drag is less.

(Note that this applies even if you use no leverage. It is a complete myth that volatility drag only applies when you use leverage; it applies at all fundamental levels of volatility, when you buy a SPY or index fund, vol drag simply forms part of the base returns and you don't see it compared).

To quote Andrew Ang:

"If volatility is so predictable, then volatility trading should lead to terrific investment gains. It does. Despite my pessimism on predicting expected returns of the previous section, I am far more enthusiastic on strategies predicting volatilities"

Another reason why volatility targeting improves returns is because it has a modest (statistically significant, tradable, and return enhancing; but obviously not always right) correlation with future equity market returns. From the book 'Asset Management' by Andrew Ang:

VIX correlation with 1 quarter equity returns: 0.12; or 1 year: 0.10
Past volatility correlation with 1 quarter equity returns: 0.05 or 0.09.
I'm still failing to see why a strategy that makes use of the St Dev of a non-normal distribution could possibly be theoretically sound.

As for VIX correlation; I don't believe your statements for a second. If anything, VIX should be negatively correlated with market returns. Please offer an explanation as to why increased volatility in options (VIX) should be positively correlated with market returns. Thanks
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
RandomWord
Posts: 119
Joined: Tue Jun 18, 2019 1:12 pm

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

Post by RandomWord »

305pelusa wrote: Fri Jul 26, 2019 11:13 am
coingaroo wrote: Fri Jul 26, 2019 6:51 am
305pelusa wrote: Thu Jul 25, 2019 5:02 pm To the people using recent-volatility (like previous 20 days) to dynamically shift your allocations, please answer the following:

It is well-documented that market daily returns are not normally distributed. Not even close. The St. Dev. (as a measure of risk) is quite literally a meaningless number for a non-normal distribution.

Over longer horizons (years), the Central Limit Theorem dictates that the return distributions will be approximately normal (even though it is constituted by non-normal daily distributions... that's where the CLT comes in). So over long time horizons, St. Dev does start to make sense. The OP's choice of using long-term volatility is on the right track and theoretically sound IMO.

Knowing this, what makes you think it is prudent in any way to use such a short-term window of standard deviation?

And no "it backtested well!" answers. I'm looking for an actual theoretical or intuitive explanation as to why you think it makes sense.

Thanks.
Volatility is time varying throughout markets, due to factors like monetary policies of central banks. Hence, a portfolio experiences different levels of volatility over time. By targeting volatility to one level, you take on the same consistent level risk over time. Because volatility drag is a function of volatility and not directly leverage, it means that if you reduce leverage when volatility is high, you reduce volatility drag's impact on returns, and conversely, you allow yourself to leverage more when the volatility drag is less.

(Note that this applies even if you use no leverage. It is a complete myth that volatility drag only applies when you use leverage; it applies at all fundamental levels of volatility, when you buy a SPY or index fund, vol drag simply forms part of the base returns and you don't see it compared).

To quote Andrew Ang:

"If volatility is so predictable, then volatility trading should lead to terrific investment gains. It does. Despite my pessimism on predicting expected returns of the previous section, I am far more enthusiastic on strategies predicting volatilities"

Another reason why volatility targeting improves returns is because it has a modest (statistically significant, tradable, and return enhancing; but obviously not always right) correlation with future equity market returns. From the book 'Asset Management' by Andrew Ang:

VIX correlation with 1 quarter equity returns: 0.12; or 1 year: 0.10
Past volatility correlation with 1 quarter equity returns: 0.05 or 0.09.
I'm still failing to see why a strategy that makes use of the St Dev of a non-normal distribution could possibly be theoretically sound.
It might be a case of "all models are wrong, but some models are useful".
Sure, in a perfect world we'd only use the St Dev for a perfectly normal distribution. Or we'd know what sort of distribution it is, and use the appropriate mathematical quantity for that distribution. Still, if the distribution is "sort of" normal then the St Dev might still be useful, at least as much as any other risk measurement. But yeah, it's only a very rough measurement of risk, and you shouldn't rely on it much.
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

RandomWord wrote: Fri Jul 26, 2019 12:10 pm
305pelusa wrote: Fri Jul 26, 2019 11:13 am

I'm still failing to see why a strategy that makes use of the St Dev of a non-normal distribution could possibly be theoretically sound.
It might be a case of "all models are wrong, but some models are useful".
Sure, in a perfect world we'd only use the St Dev for a perfectly normal distribution. Or we'd know what sort of distribution it is, and use the appropriate mathematical quantity for that distribution. Still, if the distribution is "sort of" normal then the St Dev might still be useful, at least as much as any other risk measurement. But yeah, it's only a very rough measurement of risk, and you shouldn't rely on it much.
+1. While it may not be a perfect relationship, it still will be proportional to the recent volatility of the asset.
caklim00
Posts: 2344
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 »

MotoTrojan wrote: Fri Jul 26, 2019 11:05 am
caklim00 wrote: Fri Jul 26, 2019 9:21 am Running the 20 day backlook procedure:
1: PV website, click on Adaptive Allocation under Timing Models (bottom right)
2: Add your tickers (only use 2 for now)
3: Set Volatility Period to Specify and then manually enter 20 days
4: Monthly rebalance
5: Run the test
6: Under results, click Timing Periods tab
7: Scroll to the very bottom and it'll show you the allocation based on the current signal date, as well as the raw volatility of each fund

Code: Select all

#	Start	End	Months	Assets	Asset Performance	Timing Portfolio
1	Jan-10	Jan-10	1	42.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.70% ProShares UltraPro S&P500 (UPRO)	TMF: 7.34%, UPRO: -11.19%	-3.35%
2	Feb-10	Feb-10	1	56.04% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.96% ProShares UltraPro S&P500 (UPRO)	TMF: -1.82%, UPRO: 8.94%	2.91%
3	Mar-10	Mar-10	1	56.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.69% ProShares UltraPro S&P500 (UPRO)	TMF: -6.73%, UPRO: 18.90%	4.47%
4	Apr-10	Apr-10	1	41.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.31% ProShares UltraPro S&P500 (UPRO)	TMF: 9.96%, UPRO: 4.08%	6.53%
5	May-10	May-10	1	54.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.97% ProShares UltraPro S&P500 (UPRO)	TMF: 16.54%, UPRO: -24.15%	-2.17%
6	Jun-10	Jun-10	1	57.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.63% ProShares UltraPro S&P500 (UPRO)	TMF: 16.73%, UPRO: -16.58%	2.53%
7	Jul-10	Jul-10	1	59.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 40.92% ProShares UltraPro S&P500 (UPRO)	TMF: -3.90%, UPRO: 21.17%	6.36%
8	Aug-10	Aug-10	1	57.16% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.84% ProShares UltraPro S&P500 (UPRO)	TMF: 25.94%, UPRO: -13.46%	9.06%
9	Sep-10	Sep-10	1	44.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.71% ProShares UltraPro S&P500 (UPRO)	TMF: -9.02%, UPRO: 27.94%	11.57%
10	Oct-10	Oct-10	1	40.82% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.18% ProShares UltraPro S&P500 (UPRO)	TMF: -13.57%, UPRO: 11.44%	1.23%
11	Nov-10	Nov-10	1	41.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.80% ProShares UltraPro S&P500 (UPRO)	TMF: -6.03%, UPRO: -0.82%	-2.97%
12	Dec-10	Dec-10	1	42.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.25% ProShares UltraPro S&P500 (UPRO)	TMF: -11.63%, UPRO: 21.36%	7.26%
13	Jan-11	Jan-11	1	19.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 80.56% ProShares UltraPro S&P500 (UPRO)	TMF: -9.40%, UPRO: 6.56%	3.46%
14	Feb-11	Feb-11	1	43.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.92% ProShares UltraPro S&P500 (UPRO)	TMF: 4.49%, UPRO: 10.39%	7.85%
15	Mar-11	Mar-11	1	48.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.21% ProShares UltraPro S&P500 (UPRO)	TMF: -0.55%, UPRO: -0.80%	-0.68%
16	Apr-11	Apr-11	1	54.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.30% ProShares UltraPro S&P500 (UPRO)	TMF: 6.57%, UPRO: 8.73%	7.55%
17	May-11	May-11	1	43.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.27% ProShares UltraPro S&P500 (UPRO)	TMF: 10.36%, UPRO: -3.93%	2.32%
18	Jun-11	Jun-11	1	52.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.21% ProShares UltraPro S&P500 (UPRO)	TMF: -7.39%, UPRO: -5.87%	-6.68%
19	Jul-11	Jul-11	1	54.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.63% ProShares UltraPro S&P500 (UPRO)	TMF: 13.28%, UPRO: -6.39%	4.30%
20	Aug-11	Aug-11	1	49.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.80% ProShares UltraPro S&P500 (UPRO)	TMF: 27.34%, UPRO: -21.09%	2.74%
21	Sep-11	Sep-11	1	57.66% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.34% ProShares UltraPro S&P500 (UPRO)	TMF: 41.35%, UPRO: -20.69%	15.09%
22	Oct-11	Oct-11	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: -12.87%, UPRO: 32.61%	9.41%
23	Nov-11	Nov-11	1	50.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.38% ProShares UltraPro S&P500 (UPRO)	TMF: 4.89%, UPRO: -3.35%	0.82%
24	Dec-11	Dec-11	1	62.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.47% ProShares UltraPro S&P500 (UPRO)	TMF: 9.46%, UPRO: 2.30%	6.78%
25	Jan-12	Jan-12	1	49.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.82% ProShares UltraPro S&P500 (UPRO)	TMF: -1.50%, UPRO: 13.90%	6.33%
26	Feb-12	Feb-12	1	36.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.61% ProShares UltraPro S&P500 (UPRO)	TMF: -7.95%, UPRO: 13.24%	5.53%
27	Mar-12	Mar-12	1	36.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.24% ProShares UltraPro S&P500 (UPRO)	TMF: -13.02%, UPRO: 9.29%	1.09%
28	Apr-12	Apr-12	1	42.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.31% ProShares UltraPro S&P500 (UPRO)	TMF: 14.37%, UPRO: -2.38%	4.77%
29	May-12	May-12	1	49.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.62% ProShares UltraPro S&P500 (UPRO)	TMF: 28.90%, UPRO: -17.35%	5.49%
30	Jun-12	Jun-12	1	50.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.95% ProShares UltraPro S&P500 (UPRO)	TMF: -5.78%, UPRO: 11.47%	2.84%
31	Jul-12	Jul-12	1	56.25% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.75% ProShares UltraPro S&P500 (UPRO)	TMF: 11.43%, UPRO: 3.52%	7.97%
32	Aug-12	Aug-12	1	54.92% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.08% ProShares UltraPro S&P500 (UPRO)	TMF: -4.61%, UPRO: 6.53%	0.41%
33	Sep-12	Sep-12	1	31.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 68.70% ProShares UltraPro S&P500 (UPRO)	TMF: -7.87%, UPRO: 7.52%	2.70%
34	Oct-12	Oct-12	1	41.78% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.22% ProShares UltraPro S&P500 (UPRO)	TMF: -2.13%, UPRO: -5.96%	-4.36%
35	Nov-12	Nov-12	1	43.27% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.73% ProShares UltraPro S&P500 (UPRO)	TMF: 3.90%, UPRO: 1.01%	2.26%
36	Dec-12	Dec-12	1	58.60% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.40% ProShares UltraPro S&P500 (UPRO)	TMF: -7.80%, UPRO: 2.82%	-3.41%
37	Jan-13	Jan-13	1	49.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.95% ProShares UltraPro S&P500 (UPRO)	TMF: -9.58%, UPRO: 15.39%	3.14%
38	Feb-13	Feb-13	1	35.55% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.45% ProShares UltraPro S&P500 (UPRO)	TMF: 3.39%, UPRO: 3.56%	3.50%
39	Mar-13	Mar-13	1	51.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.14% ProShares UltraPro S&P500 (UPRO)	TMF: -1.77%, UPRO: 11.03%	4.39%
40	Apr-13	Apr-13	1	42.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.81% ProShares UltraPro S&P500 (UPRO)	TMF: 14.25%, UPRO: 5.45%	9.16%
41	May-13	May-13	1	52.48% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.52% ProShares UltraPro S&P500 (UPRO)	TMF: -19.65%, UPRO: 6.80%	-7.08%
42	Jun-13	Jun-13	1	37.97% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.03% ProShares UltraPro S&P500 (UPRO)	TMF: -10.33%, UPRO: -5.23%	-7.17%
43	Jul-13	Jul-13	1	51.09% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.91% ProShares UltraPro S&P500 (UPRO)	TMF: -7.41%, UPRO: 16.41%	4.24%
44	Aug-13	Aug-13	1	30.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 69.65% ProShares UltraPro S&P500 (UPRO)	TMF: -4.47%, UPRO: -9.21%	-7.77%
45	Sep-13	Sep-13	1	42.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.14% ProShares UltraPro S&P500 (UPRO)	TMF: 1.53%, UPRO: 9.60%	6.14%
46	Oct-13	Oct-13	1	42.91% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.09% ProShares UltraPro S&P500 (UPRO)	TMF: 4.12%, UPRO: 13.76%	9.62%
47	Nov-13	Nov-13	1	57.93% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.07% ProShares UltraPro S&P500 (UPRO)	TMF: -8.19%, UPRO: 8.87%	-1.01%
48	Dec-13	Dec-13	1	38.84% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.16% ProShares UltraPro S&P500 (UPRO)	TMF: -6.01%, UPRO: 7.54%	2.27%
49	Jan-14	Jan-14	1	50.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.99% ProShares UltraPro S&P500 (UPRO)	TMF: 19.47%, UPRO: -10.72%	4.38%
50	Feb-14	Feb-14	1	60.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.71% ProShares UltraPro S&P500 (UPRO)	TMF: 1.63%, UPRO: 13.65%	6.41%
51	Mar-14	Mar-14	1	57.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.00% ProShares UltraPro S&P500 (UPRO)	TMF: 1.76%, UPRO: 2.15%	1.93%
52	Apr-14	Apr-14	1	46.02% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.98% ProShares UltraPro S&P500 (UPRO)	TMF: 5.96%, UPRO: 1.65%	3.63%
53	May-14	May-14	1	61.81% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 38.19% ProShares UltraPro S&P500 (UPRO)	TMF: 8.79%, UPRO: 6.62%	7.97%
54	Jun-14	Jun-14	1	45.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 54.06% ProShares UltraPro S&P500 (UPRO)	TMF: -1.00%, UPRO: 6.22%	2.91%
55	Jul-14	Jul-14	1	37.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.61% ProShares UltraPro S&P500 (UPRO)	TMF: 1.61%, UPRO: -4.44%	-2.18%
56	Aug-14	Aug-14	1	50.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.97% ProShares UltraPro S&P500 (UPRO)	TMF: 14.42%, UPRO: 11.95%	13.19%
57	Sep-14	Sep-14	1	46.85% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.15% ProShares UltraPro S&P500 (UPRO)	TMF: -6.65%, UPRO: -4.44%	-5.47%
58	Oct-14	Oct-14	1	48.11% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.89% ProShares UltraPro S&P500 (UPRO)	TMF: 8.06%, UPRO: 6.03%	7.01%
59	Nov-14	Nov-14	1	65.87% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.13% ProShares UltraPro S&P500 (UPRO)	TMF: 9.08%, UPRO: 8.34%	8.83%
60	Dec-14	Dec-14	1	39.32% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.68% ProShares UltraPro S&P500 (UPRO)	TMF: 9.38%, UPRO: -1.54%	2.76%
61	Jan-15	Jan-15	1	52.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.69% ProShares UltraPro S&P500 (UPRO)	TMF: 31.01%, UPRO: -9.47%	11.70%
62	Feb-15	Feb-15	1	49.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.21% ProShares UltraPro S&P500 (UPRO)	TMF: -17.87%, UPRO: 17.48%	-0.12%
63	Mar-15	Mar-15	1	39.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.92% ProShares UltraPro S&P500 (UPRO)	TMF: 2.57%, UPRO: -5.28%	-2.21%
64	Apr-15	Apr-15	1	48.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.94% ProShares UltraPro S&P500 (UPRO)	TMF: -10.30%, UPRO: 2.59%	-3.60%
65	May-15	May-15	1	40.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.55% ProShares UltraPro S&P500 (UPRO)	TMF: -7.91%, UPRO: 3.43%	-1.16%
66	Jun-15	Jun-15	1	36.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.56% ProShares UltraPro S&P500 (UPRO)	TMF: -12.49%, UPRO: -6.21%	-8.50%
67	Jul-15	Jul-15	1	38.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.70% ProShares UltraPro S&P500 (UPRO)	TMF: 13.40%, UPRO: 6.17%	8.94%
68	Aug-15	Aug-15	1	44.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.54% ProShares UltraPro S&P500 (UPRO)	TMF: -2.75%, UPRO: -18.87%	-11.70%
69	Sep-15	Sep-15	1	64.23% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 35.77% ProShares UltraPro S&P500 (UPRO)	TMF: 5.10%, UPRO: -8.64%	0.19%
70	Oct-15	Oct-15	1	55.52% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.48% ProShares UltraPro S&P500 (UPRO)	TMF: -1.73%, UPRO: 26.79%	10.95%
71	Nov-15	Nov-15	1	52.98% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.02% ProShares UltraPro S&P500 (UPRO)	TMF: -2.71%, UPRO: 0.81%	-1.05%
72	Dec-15	Dec-15	1	60.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.65% ProShares UltraPro S&P500 (UPRO)	TMF: -2.41%, UPRO: -6.06%	-3.85%
73	Jan-16	Jan-16	1	53.74% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 46.26% ProShares UltraPro S&P500 (UPRO)	TMF: 17.74%, UPRO: -15.38%	2.42%
74	Feb-16	Feb-16	1	65.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.47% ProShares UltraPro S&P500 (UPRO)	TMF: 8.71%, UPRO: -1.68%	5.13%
75	Mar-16	Mar-16	1	55.95% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.05% ProShares UltraPro S&P500 (UPRO)	TMF: -0.64%, UPRO: 21.50%	9.11%
76	Apr-16	Apr-16	1	46.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.25% ProShares UltraPro S&P500 (UPRO)	TMF: -2.39%, UPRO: 0.81%	-0.69%
77	May-16	May-16	1	49.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.93% ProShares UltraPro S&P500 (UPRO)	TMF: 1.86%, UPRO: 4.65%	3.28%
78	Jun-16	Jun-16	1	52.56% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.44% ProShares UltraPro S&P500 (UPRO)	TMF: 21.23%, UPRO: -0.20%	11.06%
79	Jul-16	Jul-16	1	55.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.62% ProShares UltraPro S&P500 (UPRO)	TMF: 6.07%, UPRO: 11.13%	8.33%
80	Aug-16	Aug-16	1	35.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.82% ProShares UltraPro S&P500 (UPRO)	TMF: -3.58%, UPRO: 0.11%	-1.19%
81	Sep-16	Sep-16	1	32.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.59% ProShares UltraPro S&P500 (UPRO)	TMF: -4.78%, UPRO: -0.54%	-1.91%
82	Oct-16	Oct-16	1	54.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.37% ProShares UltraPro S&P500 (UPRO)	TMF: -13.32%, UPRO: -5.62%	-9.83%
83	Nov-16	Nov-16	1	42.64% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.36% ProShares UltraPro S&P500 (UPRO)	TMF: -23.91%, UPRO: 11.05%	-3.85%
84	Dec-16	Dec-16	1	35.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.33% ProShares UltraPro S&P500 (UPRO)	TMF: -0.99%, UPRO: 5.96%	3.48%
85	Jan-17	Jan-17	1	42.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 5.14%	3.57%
86	Feb-17	Feb-17	1	33.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.59% ProShares UltraPro S&P500 (UPRO)	TMF: 4.41%, UPRO: 11.91%	9.40%
87	Mar-17	Mar-17	1	29.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 70.27% ProShares UltraPro S&P500 (UPRO)	TMF: -2.35%, UPRO: -0.22%	-0.85%
88	Apr-17	Apr-17	1	41.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.43%, UPRO: 2.77%	3.46%
89	May-17	May-17	1	42.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.93% ProShares UltraPro S&P500 (UPRO)	TMF: 5.17%, UPRO: 3.70%	4.32%
90	Jun-17	Jun-17	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: 1.98%, UPRO: 1.51%	1.75%
91	Jul-17	Jul-17	1	43.43% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.57% ProShares UltraPro S&P500 (UPRO)	TMF: -2.43%, UPRO: 5.87%	2.27%
92	Aug-17	Aug-17	1	38.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.55% ProShares UltraPro S&P500 (UPRO)	TMF: 10.13%, UPRO: 0.21%	4.02%
93	Sep-17	Sep-17	1	57.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.54% ProShares UltraPro S&P500 (UPRO)	TMF: -7.29%, UPRO: 5.69%	-1.77%
94	Oct-17	Oct-17	1	33.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.94% ProShares UltraPro S&P500 (UPRO)	TMF: -0.53%, UPRO: 6.83%	4.40%
95	Nov-17	Nov-17	1	38.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.73%, UPRO: 8.87%	6.09%
96	Dec-17	Dec-17	1	39.80% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.20% ProShares UltraPro S&P500 (UPRO)	TMF: 5.04%, UPRO: 3.45%	4.09%
97	Jan-18	Jan-18	1	32.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.21% ProShares UltraPro S&P500 (UPRO)	TMF: -9.77%, UPRO: 18.22%	9.04%
98	Feb-18	Feb-18	1	49.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.60% ProShares UltraPro S&P500 (UPRO)	TMF: -9.57%, UPRO: -13.53%	-11.58%
99	Mar-18	Mar-18	1	69.21% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.79% ProShares UltraPro S&P500 (UPRO)	TMF: 8.44%, UPRO: -8.69%	3.17%
100	Apr-18	Apr-18	1	70.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.00% ProShares UltraPro S&P500 (UPRO)	TMF: -6.71%, UPRO: -0.14%	-4.74%
101	May-18	May-18	1	62.72% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.28% ProShares UltraPro S&P500 (UPRO)	TMF: 5.27%, UPRO: 6.46%	5.71%
102	Jun-18	Jun-18	1	47.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 52.81% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 1.29%	1.38%
103	Jul-18	Jul-18	1	48.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.37% ProShares UltraPro S&P500 (UPRO)	TMF: -4.70%, UPRO: 10.73%	3.23%
104	Aug-18	Aug-18	1	51.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.81% ProShares UltraPro S&P500 (UPRO)	TMF: 3.36%, UPRO: 9.09%	6.16%
105	Sep-18	Sep-18	1	51.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.27% ProShares UltraPro S&P500 (UPRO)	TMF: -8.77%, UPRO: 1.20%	-3.96%
106	Oct-18	Oct-18	1	42.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.38% ProShares UltraPro S&P500 (UPRO)	TMF: -9.11%, UPRO: -20.78%	-15.81%
107	Nov-18	Nov-18	1	72.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 27.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.76%, UPRO: 4.28%	4.63%
108	Dec-18	Dec-18	1	73.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 26.87% ProShares UltraPro S&P500 (UPRO)	TMF: 17.93%, UPRO: -26.25%	6.06%
109	Jan-19	Jan-19	1	74.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 25.24% ProShares UltraPro S&P500 (UPRO)	TMF: 0.41%, UPRO: 23.89%	6.34%
110	Feb-19	Feb-19	1	68.65% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 31.35% ProShares UltraPro S&P500 (UPRO)	TMF: -4.52%, UPRO: 9.28%	-0.20%
111	Mar-19	Mar-19	1	49.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.33% ProShares UltraPro S&P500 (UPRO)	TMF: 17.00%, UPRO: 4.85%	10.88%
112	Apr-19	Apr-19	1	58.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.30% ProShares UltraPro S&P500 (UPRO)	TMF: -6.56%, UPRO: 11.81%	1.03%
113	May-19	May-19	1	40.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.65% ProShares UltraPro S&P500 (UPRO)	TMF: 21.11%, UPRO: -18.89%	-2.75%
114	Jun-19	Jun-19	1	65.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.87% ProShares UltraPro S&P500 (UPRO)	TMF: 1.90%, UPRO: 21.37%	8.69%
115	Jul-19	Jul-19	1	52.22% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.78% ProShares UltraPro S&P500 (UPRO)	-	-
Its kind off crazy how these allocations jump all over the place. I tried to look at the details to see if I could see any trends as to whether when the allocation to URPO or TMF increases over the peior month if the fund is more likely to see a bump in return and I can't find anything. It just seems really random. I must be missing something.

I'm torn right now between Quarterly rebalance to 40/60 (or 50/50) UPRO or use this 20 day backlook. Again, backtesting looks great, but trying to figure out if there is actually something to this madness :) Or does the volatility shift so quickly that looking back 20 days is pointless so its better to look at aggregate volatility.
Their performance (40/60 quarterly vs. this) are almost identical from 1987 to 2007. From 2007-2012 they are close, but the market-timing has a smaller drawdown. From 2012-present the 20-day look-back has some sizeable outperformance, very similar to how 55/45 UPRO/TMF quarterly would've performed. Seems this is simply due to a calm bull-market resulting in a higher allocation to UPRO. This outperformance may not be as meaningful though if a sudden decline wipes you out :). Certainly an interesting decision and there may be less regret using a fixed AA and rebalance period.

I personally wouldn't want to be 50/50 UPRO/TMF; I would rather stay around 40% and if I wanted to skew away from risk-parity (more risk on the equity side) I would just replace some TMF with EDV. This is effectively the same as going 50/50 but with a 20% reduction in overall leverage.
Alright, I'm in on the market-timing approach for 10k. I'm not comfortable with a big chunk like 100K since I have a feeling this is going to blow up in my face lol. 100k would take up a significant portion of my Roth space and I just have a feeling there is some risk that is more likely to manifest itself with this strategy. I plan on selling some ISCF next week (anyone want to put in a BID order when I put in my ASK), purchase URPO and TMF using ~20day lookback, transfer URPO and TMF and extra cash from Roth to M1 Roth (hopefully it will be open soon- EDIT: it opened, yeah) and then do the next rebalance in M1 on August 30th.

I asked my wife if she had any interest in her Roth and she said she wanted no part of this lol.
Last edited by caklim00 on Fri Jul 26, 2019 3:47 pm, edited 1 time in total.
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

caklim00 wrote: Fri Jul 26, 2019 3:32 pm

Alright, I'm in on the market-timing approach for 10k. I'm not comfortable with a big chunk like 100K since I have a feeling this is going to blow up in my face lol. 100k would take up a significant portion of my Roth space and I just have a feeling there is some risk that is more likely to manifest itself with this strategy. I plan on selling some ISCF next week (anyone want to put in a BID order when I put in my ASK), purchase URPO and TMF using ~20day lookback, transfer URPO and TMF and extra cash from Roth to M1 Roth (hopefully it will be open soon) and then do the next rebalance in M1 on August 30th.

I asked my wife if she had any interest in her Roth and she said she wanted no part of this lol.
Wife is probably smart.

Not to throw another variable in the mix but the performance using a target volatility portfolio is even better historically, by quite a bit.

viewtopic.php?f=10&t=281691

This thread describes such a portfolio using non-leveraged holdings.

This is basically the same concept but instead of achieving risk-parity you just set a target volatility on the equity side and adjust allocation accordingly (so it ignores changes in bond volatility).
caklim00
Posts: 2344
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 »

MotoTrojan wrote: Fri Jul 26, 2019 3:36 pm
caklim00 wrote: Fri Jul 26, 2019 3:32 pm

Alright, I'm in on the market-timing approach for 10k. I'm not comfortable with a big chunk like 100K since I have a feeling this is going to blow up in my face lol. 100k would take up a significant portion of my Roth space and I just have a feeling there is some risk that is more likely to manifest itself with this strategy. I plan on selling some ISCF next week (anyone want to put in a BID order when I put in my ASK), purchase URPO and TMF using ~20day lookback, transfer URPO and TMF and extra cash from Roth to M1 Roth (hopefully it will be open soon) and then do the next rebalance in M1 on August 30th.

I asked my wife if she had any interest in her Roth and she said she wanted no part of this lol.
Wife is probably smart.

Not to throw another variable in the mix but the performance using a target volatility portfolio is even better historically, by quite a bit.

viewtopic.php?f=10&t=281691

This thread describes such a portfolio using non-leveraged holdings.

This is basically the same concept but instead of achieving risk-parity you just set a target volatility on the equity side and adjust allocation accordingly (so it ignores changes in bond volatility).
Is there an easy way to do this? If not I think I'll just stick with the 20 day lookback procedure. Thats easy enough that I can take 2 minutes every month and make the update quickly.
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

caklim00 wrote: Fri Jul 26, 2019 3:55 pm
MotoTrojan wrote: Fri Jul 26, 2019 3:36 pm
caklim00 wrote: Fri Jul 26, 2019 3:32 pm

Alright, I'm in on the market-timing approach for 10k. I'm not comfortable with a big chunk like 100K since I have a feeling this is going to blow up in my face lol. 100k would take up a significant portion of my Roth space and I just have a feeling there is some risk that is more likely to manifest itself with this strategy. I plan on selling some ISCF next week (anyone want to put in a BID order when I put in my ASK), purchase URPO and TMF using ~20day lookback, transfer URPO and TMF and extra cash from Roth to M1 Roth (hopefully it will be open soon) and then do the next rebalance in M1 on August 30th.

I asked my wife if she had any interest in her Roth and she said she wanted no part of this lol.
Wife is probably smart.

Not to throw another variable in the mix but the performance using a target volatility portfolio is even better historically, by quite a bit.

viewtopic.php?f=10&t=281691

This thread describes such a portfolio using non-leveraged holdings.

This is basically the same concept but instead of achieving risk-parity you just set a target volatility on the equity side and adjust allocation accordingly (so it ignores changes in bond volatility).
Is there an easy way to do this? If not I think I'll just stick with the 20 day lookback procedure. Thats easy enough that I can take 2 minutes every month and make the update quickly.
Easy to implement, yup (see link below for 22% target volatility case, you'll find this month's allocation in the same location). It may not be as easy to go with the recommended 93% UPRO though :).

The more I play with these things the more I feel I am being skewed by the outperformance of these market timing strategies during the global financial crisis. If you have your backtests end around 2007 things look a lot closer (and there are periods where quarterly 40/60 wins). I find this volatility management stuff pretty fascinating but it may be more appropriate for an unleveraged fund where I would otherwise be holding 100% equities to begin with.

https://www.portfoliovisualizer.com/tes ... total1=100
caklim00
Posts: 2344
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 »

MotoTrojan wrote: Fri Jul 26, 2019 3:59 pm
caklim00 wrote: Fri Jul 26, 2019 3:55 pm
MotoTrojan wrote: Fri Jul 26, 2019 3:36 pm
caklim00 wrote: Fri Jul 26, 2019 3:32 pm

Alright, I'm in on the market-timing approach for 10k. I'm not comfortable with a big chunk like 100K since I have a feeling this is going to blow up in my face lol. 100k would take up a significant portion of my Roth space and I just have a feeling there is some risk that is more likely to manifest itself with this strategy. I plan on selling some ISCF next week (anyone want to put in a BID order when I put in my ASK), purchase URPO and TMF using ~20day lookback, transfer URPO and TMF and extra cash from Roth to M1 Roth (hopefully it will be open soon) and then do the next rebalance in M1 on August 30th.

I asked my wife if she had any interest in her Roth and she said she wanted no part of this lol.
Wife is probably smart.

Not to throw another variable in the mix but the performance using a target volatility portfolio is even better historically, by quite a bit.

viewtopic.php?f=10&t=281691

This thread describes such a portfolio using non-leveraged holdings.

This is basically the same concept but instead of achieving risk-parity you just set a target volatility on the equity side and adjust allocation accordingly (so it ignores changes in bond volatility).
Is there an easy way to do this? If not I think I'll just stick with the 20 day lookback procedure. Thats easy enough that I can take 2 minutes every month and make the update quickly.
Easy to implement, yup (see link below for 22% target volatility case, you'll find this month's allocation in the same location). It may not be as easy to go with the recommended 93% UPRO though :).

The more I play with these things the more I feel I am being skewed by the outperformance of these market timing strategies during the global financial crisis. If you have your backtests end around 2007 things look a lot closer (and there are periods where quarterly 40/60 wins). I find this volatility management stuff pretty fascinating but it may be more appropriate for an unleveraged fund where I would otherwise be holding 100% equities to begin with.

https://www.portfoliovisualizer.com/tes ... total1=100
Haha

Code: Select all

109	May 2019	May 2019	1	100.00% ProShares UltraPro S&P500 (UPRO)	-18.89%	-18.89%
I think you are right, not sure i can stomach this.

Are all of the previous months calculations done before the month actually occurs? Meaning, its not just trying to fit after the fact is it?
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

caklim00 wrote: Fri Jul 26, 2019 4:33 pm

Are all of the previous months calculations done before the month actually occurs? Meaning, its not just trying to fit after the fact is it?
Correct. It evaluates, adjusts, then sees what happens.
tj
Posts: 3986
Joined: Thu Dec 24, 2009 12:10 am

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

Post by tj »

rascott wrote: Thu Jul 25, 2019 5:23 pm
MoneyMarathon wrote: Wed Jul 24, 2019 5:19 pm
JBeck wrote: Sun Jul 21, 2019 6:41 pm Curious as to if anyone has decided to change their asset allocation based on all the possible alternatives MoneyMarathon has provided
I've actually made my changes. Unlike others in this thread, I haven't started a play money or side bet account. I was able to buy PSLDX in the Roth IRAs at Vanguard and in my 401k by using a Schwab PCRA brokerage window. The fees were $20 x 2 at Vanguard and $49.95 x 1 at Schwab.

I decided that I really like PSLDX (S&P 500 and long-term treasury/corporate/other bonds) in tax-advantaged. Part of the reason I like it is behavioral. It generally hugs the S&P 500 index with some of what might be called "alpha" from using bonds, which is ideal for someone who tends to be happy when not underperforming the market. Another behavioral aspect is that there is no button-pushing. This is huge, we're not robots. I didn't even check the financial news at all in 2018 and didn't know there was a stock correction in December until this summer. Ignorance is bliss, I guess. Another reason is that it was easy to explain and get my spouse on board. Having it go through 2008, for real, and be basically fine is another selling point. Being at PIMCO instead of a tiny ETF provider is another selling point. Not having to wonder about optimal rebalancing strategies or forgetting to do it optimally could be considered a plus. Being able to focus more free time and energy on other, income-generating opportunities is a plus. Not having to worry about what would happen if someone inherited the account and left it alone is a plus.

I also decided that I didn't like PISIX, the international fund. They're a bit too active for my tastes on the bond side, whipping around their duration exposure based on manager decisions, I guess because they have no "secondary index" or duration target like PSLDX (that secondary index and duration target forces the PSLDX guys to be sort-of closet indexers at heart, which is good).

The other reason that I don't like PISIX is that PSLDX is too darn good. It takes up valuable tax-advantaged space that is better used by PSLDX, which throws off more income on the bond side. My goal is actually to have 100% of tax advantaged in PSLDX, while keeping international in taxable. I'm not there yet, need to build up my taxable account more. Currently I'm a a little over 80% of tax advantaged in PSLDX, the rest in the institutional version of VXUS (ex-US world equities). Over time, I'd like to shift to using IXUS in taxable (since it seems somewhat more tax-efficient than VXUS) for my international exposure.

Personal Capital says my allocation now looks like this:

-92.8% Cash
13.95% International Bonds
77.7% US Bonds
17.44% International Stock
80.55% US Stock
3.34% Alternatives (Real Estate, etc.)

My paycheck 401k contributions (traditional and after-tax) are going to the international stock fund.


I can't get this fund (PSLDX) out of my head. Have been thinking about it for the last couple of weeks. And trying to figure out why I shouldn't put basically all my LC blend allocation into this fund (or as much as I can get into it).

Under what scenario will this thing greatly lag the SP500? Beyond inflation spikes.... which would be theoretically temporary? And in 'normal' world how could it not over-perform the index?
Historically it lagged heavily in 2013.
columbia
Posts: 3023
Joined: Tue Aug 27, 2013 5:30 am

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

Post by columbia »

tj wrote: Fri Jul 26, 2019 5:07 pm
rascott wrote: Thu Jul 25, 2019 5:23 pm
MoneyMarathon wrote: Wed Jul 24, 2019 5:19 pm
JBeck wrote: Sun Jul 21, 2019 6:41 pm Curious as to if anyone has decided to change their asset allocation based on all the possible alternatives MoneyMarathon has provided
I've actually made my changes. Unlike others in this thread, I haven't started a play money or side bet account. I was able to buy PSLDX in the Roth IRAs at Vanguard and in my 401k by using a Schwab PCRA brokerage window. The fees were $20 x 2 at Vanguard and $49.95 x 1 at Schwab.

I decided that I really like PSLDX (S&P 500 and long-term treasury/corporate/other bonds) in tax-advantaged. Part of the reason I like it is behavioral. It generally hugs the S&P 500 index with some of what might be called "alpha" from using bonds, which is ideal for someone who tends to be happy when not underperforming the market. Another behavioral aspect is that there is no button-pushing. This is huge, we're not robots. I didn't even check the financial news at all in 2018 and didn't know there was a stock correction in December until this summer. Ignorance is bliss, I guess. Another reason is that it was easy to explain and get my spouse on board. Having it go through 2008, for real, and be basically fine is another selling point. Being at PIMCO instead of a tiny ETF provider is another selling point. Not having to wonder about optimal rebalancing strategies or forgetting to do it optimally could be considered a plus. Being able to focus more free time and energy on other, income-generating opportunities is a plus. Not having to worry about what would happen if someone inherited the account and left it alone is a plus.

I also decided that I didn't like PISIX, the international fund. They're a bit too active for my tastes on the bond side, whipping around their duration exposure based on manager decisions, I guess because they have no "secondary index" or duration target like PSLDX (that secondary index and duration target forces the PSLDX guys to be sort-of closet indexers at heart, which is good).

The other reason that I don't like PISIX is that PSLDX is too darn good. It takes up valuable tax-advantaged space that is better used by PSLDX, which throws off more income on the bond side. My goal is actually to have 100% of tax advantaged in PSLDX, while keeping international in taxable. I'm not there yet, need to build up my taxable account more. Currently I'm a a little over 80% of tax advantaged in PSLDX, the rest in the institutional version of VXUS (ex-US world equities). Over time, I'd like to shift to using IXUS in taxable (since it seems somewhat more tax-efficient than VXUS) for my international exposure.

Personal Capital says my allocation now looks like this:

-92.8% Cash
13.95% International Bonds
77.7% US Bonds
17.44% International Stock
80.55% US Stock
3.34% Alternatives (Real Estate, etc.)

My paycheck 401k contributions (traditional and after-tax) are going to the international stock fund.


I can't get this fund (PSLDX) out of my head. Have been thinking about it for the last couple of weeks. And trying to figure out why I shouldn't put basically all my LC blend allocation into this fund (or as much as I can get into it).

Under what scenario will this thing greatly lag the SP500? Beyond inflation spikes.... which would be theoretically temporary? And in 'normal' world how could it not over-perform the index?
Historically it lagged heavily in 2013.

Long treasuries - I’m using that as a proxy - were down by 13% in 2013 and the fund noticeably lagged; LTT were down 12% in 2009 and the fund still edged out the SP500.

What to make of that?

https://www.portfoliovisualizer.com/bac ... total3=100
MoneyMarathon
Posts: 992
Joined: Sun Sep 30, 2012 3:38 am

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

Post by MoneyMarathon »

columbia wrote: Fri Jul 26, 2019 5:16 pm Long treasuries - I’m using that as a proxy - were down by 13% in 2013 and the fund noticeably lagged; LTT were down 12% in 2009 and the fund still edged out the SP500.

What to make of that?
On the bond side, it invests in some risky assets, such as corporate bonds. During the financial crisis, these commanded higher yields because of that credit risk (and a general problem of a sharp reduction in liquidity in the markets). If you were holding some corporate bonds and they didn't default in 2009, you should have done nicely, as people got more money to invest and more confidence to invest and the yields on those risky bonds came down (and prices went up). Same thing with stocks, but PSLDX has exposure that targets 100% of the S&P 500 and the risky bonds on top of that too.

For illustration, here is HYG, iShares iBoxx $ High Yield Corp Bd ETF, in 2009.

https://www.portfoliovisualizer.com/bac ... 0&total3=0

Image

In 2013, yields on bonds went up, reducing their prices. It can't beat the S&P every year. :wink:
caklim00
Posts: 2344
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 »

MotoTrojan wrote: Fri Jul 26, 2019 5:02 pm
caklim00 wrote: Fri Jul 26, 2019 4:33 pm

Are all of the previous months calculations done before the month actually occurs? Meaning, its not just trying to fit after the fact is it?
Correct. It evaluates, adjusts, then sees what happens.
Hmm, maybe its worth a test with a small allocation. That 20% target volatility would have really worked well in late 2011 when UPRO did awful.
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan »

caklim00 wrote: Fri Jul 26, 2019 6:44 pm
MotoTrojan wrote: Fri Jul 26, 2019 5:02 pm
caklim00 wrote: Fri Jul 26, 2019 4:33 pm

Are all of the previous months calculations done before the month actually occurs? Meaning, its not just trying to fit after the fact is it?
Correct. It evaluates, adjusts, then sees what happens.
Hmm, maybe its worth a test with a small allocation. That 20% target volatility would have really worked well in late 2011 when UPRO did awful.
Looking at the year 2011 alone, the 40/60 quarterly returned 64.2% with the 20% target vol. returning 67.4%. I think I would be thrilled to be invested in either.

UPRO did indeed have a 47% drawdown but the portfolio did great.
mickens16
Posts: 340
Joined: Wed Apr 06, 2011 8:52 am

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

Post by mickens16 »

caklim00 wrote: Fri Jul 26, 2019 9:21 am Running the 20 day backlook procedure:
1: PV website, click on Adaptive Allocation under Timing Models (bottom right)
2: Add your tickers (only use 2 for now)
3: Set Volatility Period to Specify and then manually enter 20 days
4: Monthly rebalance
5: Run the test
6: Under results, click Timing Periods tab
7: Scroll to the very bottom and it'll show you the allocation based on the current signal date, as well as the raw volatility of each fund

Code: Select all

#	Start	End	Months	Assets	Asset Performance	Timing Portfolio
1	Jan-10	Jan-10	1	42.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.70% ProShares UltraPro S&P500 (UPRO)	TMF: 7.34%, UPRO: -11.19%	-3.35%
2	Feb-10	Feb-10	1	56.04% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.96% ProShares UltraPro S&P500 (UPRO)	TMF: -1.82%, UPRO: 8.94%	2.91%
3	Mar-10	Mar-10	1	56.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.69% ProShares UltraPro S&P500 (UPRO)	TMF: -6.73%, UPRO: 18.90%	4.47%
4	Apr-10	Apr-10	1	41.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.31% ProShares UltraPro S&P500 (UPRO)	TMF: 9.96%, UPRO: 4.08%	6.53%
5	May-10	May-10	1	54.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.97% ProShares UltraPro S&P500 (UPRO)	TMF: 16.54%, UPRO: -24.15%	-2.17%
6	Jun-10	Jun-10	1	57.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.63% ProShares UltraPro S&P500 (UPRO)	TMF: 16.73%, UPRO: -16.58%	2.53%
7	Jul-10	Jul-10	1	59.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 40.92% ProShares UltraPro S&P500 (UPRO)	TMF: -3.90%, UPRO: 21.17%	6.36%
8	Aug-10	Aug-10	1	57.16% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.84% ProShares UltraPro S&P500 (UPRO)	TMF: 25.94%, UPRO: -13.46%	9.06%
9	Sep-10	Sep-10	1	44.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.71% ProShares UltraPro S&P500 (UPRO)	TMF: -9.02%, UPRO: 27.94%	11.57%
10	Oct-10	Oct-10	1	40.82% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.18% ProShares UltraPro S&P500 (UPRO)	TMF: -13.57%, UPRO: 11.44%	1.23%
11	Nov-10	Nov-10	1	41.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.80% ProShares UltraPro S&P500 (UPRO)	TMF: -6.03%, UPRO: -0.82%	-2.97%
12	Dec-10	Dec-10	1	42.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.25% ProShares UltraPro S&P500 (UPRO)	TMF: -11.63%, UPRO: 21.36%	7.26%
13	Jan-11	Jan-11	1	19.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 80.56% ProShares UltraPro S&P500 (UPRO)	TMF: -9.40%, UPRO: 6.56%	3.46%
14	Feb-11	Feb-11	1	43.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.92% ProShares UltraPro S&P500 (UPRO)	TMF: 4.49%, UPRO: 10.39%	7.85%
15	Mar-11	Mar-11	1	48.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.21% ProShares UltraPro S&P500 (UPRO)	TMF: -0.55%, UPRO: -0.80%	-0.68%
16	Apr-11	Apr-11	1	54.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.30% ProShares UltraPro S&P500 (UPRO)	TMF: 6.57%, UPRO: 8.73%	7.55%
17	May-11	May-11	1	43.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.27% ProShares UltraPro S&P500 (UPRO)	TMF: 10.36%, UPRO: -3.93%	2.32%
18	Jun-11	Jun-11	1	52.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.21% ProShares UltraPro S&P500 (UPRO)	TMF: -7.39%, UPRO: -5.87%	-6.68%
19	Jul-11	Jul-11	1	54.37% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.63% ProShares UltraPro S&P500 (UPRO)	TMF: 13.28%, UPRO: -6.39%	4.30%
20	Aug-11	Aug-11	1	49.20% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.80% ProShares UltraPro S&P500 (UPRO)	TMF: 27.34%, UPRO: -21.09%	2.74%
21	Sep-11	Sep-11	1	57.66% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.34% ProShares UltraPro S&P500 (UPRO)	TMF: 41.35%, UPRO: -20.69%	15.09%
22	Oct-11	Oct-11	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: -12.87%, UPRO: 32.61%	9.41%
23	Nov-11	Nov-11	1	50.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.38% ProShares UltraPro S&P500 (UPRO)	TMF: 4.89%, UPRO: -3.35%	0.82%
24	Dec-11	Dec-11	1	62.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.47% ProShares UltraPro S&P500 (UPRO)	TMF: 9.46%, UPRO: 2.30%	6.78%
25	Jan-12	Jan-12	1	49.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.82% ProShares UltraPro S&P500 (UPRO)	TMF: -1.50%, UPRO: 13.90%	6.33%
26	Feb-12	Feb-12	1	36.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.61% ProShares UltraPro S&P500 (UPRO)	TMF: -7.95%, UPRO: 13.24%	5.53%
27	Mar-12	Mar-12	1	36.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.24% ProShares UltraPro S&P500 (UPRO)	TMF: -13.02%, UPRO: 9.29%	1.09%
28	Apr-12	Apr-12	1	42.69% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.31% ProShares UltraPro S&P500 (UPRO)	TMF: 14.37%, UPRO: -2.38%	4.77%
29	May-12	May-12	1	49.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.62% ProShares UltraPro S&P500 (UPRO)	TMF: 28.90%, UPRO: -17.35%	5.49%
30	Jun-12	Jun-12	1	50.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.95% ProShares UltraPro S&P500 (UPRO)	TMF: -5.78%, UPRO: 11.47%	2.84%
31	Jul-12	Jul-12	1	56.25% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.75% ProShares UltraPro S&P500 (UPRO)	TMF: 11.43%, UPRO: 3.52%	7.97%
32	Aug-12	Aug-12	1	54.92% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.08% ProShares UltraPro S&P500 (UPRO)	TMF: -4.61%, UPRO: 6.53%	0.41%
33	Sep-12	Sep-12	1	31.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 68.70% ProShares UltraPro S&P500 (UPRO)	TMF: -7.87%, UPRO: 7.52%	2.70%
34	Oct-12	Oct-12	1	41.78% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.22% ProShares UltraPro S&P500 (UPRO)	TMF: -2.13%, UPRO: -5.96%	-4.36%
35	Nov-12	Nov-12	1	43.27% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.73% ProShares UltraPro S&P500 (UPRO)	TMF: 3.90%, UPRO: 1.01%	2.26%
36	Dec-12	Dec-12	1	58.60% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.40% ProShares UltraPro S&P500 (UPRO)	TMF: -7.80%, UPRO: 2.82%	-3.41%
37	Jan-13	Jan-13	1	49.05% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.95% ProShares UltraPro S&P500 (UPRO)	TMF: -9.58%, UPRO: 15.39%	3.14%
38	Feb-13	Feb-13	1	35.55% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.45% ProShares UltraPro S&P500 (UPRO)	TMF: 3.39%, UPRO: 3.56%	3.50%
39	Mar-13	Mar-13	1	51.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.14% ProShares UltraPro S&P500 (UPRO)	TMF: -1.77%, UPRO: 11.03%	4.39%
40	Apr-13	Apr-13	1	42.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.81% ProShares UltraPro S&P500 (UPRO)	TMF: 14.25%, UPRO: 5.45%	9.16%
41	May-13	May-13	1	52.48% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.52% ProShares UltraPro S&P500 (UPRO)	TMF: -19.65%, UPRO: 6.80%	-7.08%
42	Jun-13	Jun-13	1	37.97% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.03% ProShares UltraPro S&P500 (UPRO)	TMF: -10.33%, UPRO: -5.23%	-7.17%
43	Jul-13	Jul-13	1	51.09% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.91% ProShares UltraPro S&P500 (UPRO)	TMF: -7.41%, UPRO: 16.41%	4.24%
44	Aug-13	Aug-13	1	30.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 69.65% ProShares UltraPro S&P500 (UPRO)	TMF: -4.47%, UPRO: -9.21%	-7.77%
45	Sep-13	Sep-13	1	42.86% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.14% ProShares UltraPro S&P500 (UPRO)	TMF: 1.53%, UPRO: 9.60%	6.14%
46	Oct-13	Oct-13	1	42.91% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.09% ProShares UltraPro S&P500 (UPRO)	TMF: 4.12%, UPRO: 13.76%	9.62%
47	Nov-13	Nov-13	1	57.93% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.07% ProShares UltraPro S&P500 (UPRO)	TMF: -8.19%, UPRO: 8.87%	-1.01%
48	Dec-13	Dec-13	1	38.84% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.16% ProShares UltraPro S&P500 (UPRO)	TMF: -6.01%, UPRO: 7.54%	2.27%
49	Jan-14	Jan-14	1	50.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.99% ProShares UltraPro S&P500 (UPRO)	TMF: 19.47%, UPRO: -10.72%	4.38%
50	Feb-14	Feb-14	1	60.29% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.71% ProShares UltraPro S&P500 (UPRO)	TMF: 1.63%, UPRO: 13.65%	6.41%
51	Mar-14	Mar-14	1	57.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 43.00% ProShares UltraPro S&P500 (UPRO)	TMF: 1.76%, UPRO: 2.15%	1.93%
52	Apr-14	Apr-14	1	46.02% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.98% ProShares UltraPro S&P500 (UPRO)	TMF: 5.96%, UPRO: 1.65%	3.63%
53	May-14	May-14	1	61.81% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 38.19% ProShares UltraPro S&P500 (UPRO)	TMF: 8.79%, UPRO: 6.62%	7.97%
54	Jun-14	Jun-14	1	45.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 54.06% ProShares UltraPro S&P500 (UPRO)	TMF: -1.00%, UPRO: 6.22%	2.91%
55	Jul-14	Jul-14	1	37.39% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 62.61% ProShares UltraPro S&P500 (UPRO)	TMF: 1.61%, UPRO: -4.44%	-2.18%
56	Aug-14	Aug-14	1	50.03% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 49.97% ProShares UltraPro S&P500 (UPRO)	TMF: 14.42%, UPRO: 11.95%	13.19%
57	Sep-14	Sep-14	1	46.85% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.15% ProShares UltraPro S&P500 (UPRO)	TMF: -6.65%, UPRO: -4.44%	-5.47%
58	Oct-14	Oct-14	1	48.11% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.89% ProShares UltraPro S&P500 (UPRO)	TMF: 8.06%, UPRO: 6.03%	7.01%
59	Nov-14	Nov-14	1	65.87% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.13% ProShares UltraPro S&P500 (UPRO)	TMF: 9.08%, UPRO: 8.34%	8.83%
60	Dec-14	Dec-14	1	39.32% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.68% ProShares UltraPro S&P500 (UPRO)	TMF: 9.38%, UPRO: -1.54%	2.76%
61	Jan-15	Jan-15	1	52.31% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.69% ProShares UltraPro S&P500 (UPRO)	TMF: 31.01%, UPRO: -9.47%	11.70%
62	Feb-15	Feb-15	1	49.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.21% ProShares UltraPro S&P500 (UPRO)	TMF: -17.87%, UPRO: 17.48%	-0.12%
63	Mar-15	Mar-15	1	39.08% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.92% ProShares UltraPro S&P500 (UPRO)	TMF: 2.57%, UPRO: -5.28%	-2.21%
64	Apr-15	Apr-15	1	48.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.94% ProShares UltraPro S&P500 (UPRO)	TMF: -10.30%, UPRO: 2.59%	-3.60%
65	May-15	May-15	1	40.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.55% ProShares UltraPro S&P500 (UPRO)	TMF: -7.91%, UPRO: 3.43%	-1.16%
66	Jun-15	Jun-15	1	36.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 63.56% ProShares UltraPro S&P500 (UPRO)	TMF: -12.49%, UPRO: -6.21%	-8.50%
67	Jul-15	Jul-15	1	38.30% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.70% ProShares UltraPro S&P500 (UPRO)	TMF: 13.40%, UPRO: 6.17%	8.94%
68	Aug-15	Aug-15	1	44.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 55.54% ProShares UltraPro S&P500 (UPRO)	TMF: -2.75%, UPRO: -18.87%	-11.70%
69	Sep-15	Sep-15	1	64.23% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 35.77% ProShares UltraPro S&P500 (UPRO)	TMF: 5.10%, UPRO: -8.64%	0.19%
70	Oct-15	Oct-15	1	55.52% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.48% ProShares UltraPro S&P500 (UPRO)	TMF: -1.73%, UPRO: 26.79%	10.95%
71	Nov-15	Nov-15	1	52.98% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.02% ProShares UltraPro S&P500 (UPRO)	TMF: -2.71%, UPRO: 0.81%	-1.05%
72	Dec-15	Dec-15	1	60.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 39.65% ProShares UltraPro S&P500 (UPRO)	TMF: -2.41%, UPRO: -6.06%	-3.85%
73	Jan-16	Jan-16	1	53.74% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 46.26% ProShares UltraPro S&P500 (UPRO)	TMF: 17.74%, UPRO: -15.38%	2.42%
74	Feb-16	Feb-16	1	65.53% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.47% ProShares UltraPro S&P500 (UPRO)	TMF: 8.71%, UPRO: -1.68%	5.13%
75	Mar-16	Mar-16	1	55.95% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.05% ProShares UltraPro S&P500 (UPRO)	TMF: -0.64%, UPRO: 21.50%	9.11%
76	Apr-16	Apr-16	1	46.75% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 53.25% ProShares UltraPro S&P500 (UPRO)	TMF: -2.39%, UPRO: 0.81%	-0.69%
77	May-16	May-16	1	49.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.93% ProShares UltraPro S&P500 (UPRO)	TMF: 1.86%, UPRO: 4.65%	3.28%
78	Jun-16	Jun-16	1	52.56% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.44% ProShares UltraPro S&P500 (UPRO)	TMF: 21.23%, UPRO: -0.20%	11.06%
79	Jul-16	Jul-16	1	55.38% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 44.62% ProShares UltraPro S&P500 (UPRO)	TMF: 6.07%, UPRO: 11.13%	8.33%
80	Aug-16	Aug-16	1	35.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.82% ProShares UltraPro S&P500 (UPRO)	TMF: -3.58%, UPRO: 0.11%	-1.19%
81	Sep-16	Sep-16	1	32.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.59% ProShares UltraPro S&P500 (UPRO)	TMF: -4.78%, UPRO: -0.54%	-1.91%
82	Oct-16	Oct-16	1	54.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 45.37% ProShares UltraPro S&P500 (UPRO)	TMF: -13.32%, UPRO: -5.62%	-9.83%
83	Nov-16	Nov-16	1	42.64% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.36% ProShares UltraPro S&P500 (UPRO)	TMF: -23.91%, UPRO: 11.05%	-3.85%
84	Dec-16	Dec-16	1	35.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 64.33% ProShares UltraPro S&P500 (UPRO)	TMF: -0.99%, UPRO: 5.96%	3.48%
85	Jan-17	Jan-17	1	42.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 5.14%	3.57%
86	Feb-17	Feb-17	1	33.41% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.59% ProShares UltraPro S&P500 (UPRO)	TMF: 4.41%, UPRO: 11.91%	9.40%
87	Mar-17	Mar-17	1	29.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 70.27% ProShares UltraPro S&P500 (UPRO)	TMF: -2.35%, UPRO: -0.22%	-0.85%
88	Apr-17	Apr-17	1	41.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 58.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.43%, UPRO: 2.77%	3.46%
89	May-17	May-17	1	42.07% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.93% ProShares UltraPro S&P500 (UPRO)	TMF: 5.17%, UPRO: 3.70%	4.32%
90	Jun-17	Jun-17	1	51.01% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.99% ProShares UltraPro S&P500 (UPRO)	TMF: 1.98%, UPRO: 1.51%	1.75%
91	Jul-17	Jul-17	1	43.43% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 56.57% ProShares UltraPro S&P500 (UPRO)	TMF: -2.43%, UPRO: 5.87%	2.27%
92	Aug-17	Aug-17	1	38.45% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.55% ProShares UltraPro S&P500 (UPRO)	TMF: 10.13%, UPRO: 0.21%	4.02%
93	Sep-17	Sep-17	1	57.46% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 42.54% ProShares UltraPro S&P500 (UPRO)	TMF: -7.29%, UPRO: 5.69%	-1.77%
94	Oct-17	Oct-17	1	33.06% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 66.94% ProShares UltraPro S&P500 (UPRO)	TMF: -0.53%, UPRO: 6.83%	4.40%
95	Nov-17	Nov-17	1	38.94% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 61.06% ProShares UltraPro S&P500 (UPRO)	TMF: 1.73%, UPRO: 8.87%	6.09%
96	Dec-17	Dec-17	1	39.80% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 60.20% ProShares UltraPro S&P500 (UPRO)	TMF: 5.04%, UPRO: 3.45%	4.09%
97	Jan-18	Jan-18	1	32.79% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 67.21% ProShares UltraPro S&P500 (UPRO)	TMF: -9.77%, UPRO: 18.22%	9.04%
98	Feb-18	Feb-18	1	49.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.60% ProShares UltraPro S&P500 (UPRO)	TMF: -9.57%, UPRO: -13.53%	-11.58%
99	Mar-18	Mar-18	1	69.21% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.79% ProShares UltraPro S&P500 (UPRO)	TMF: 8.44%, UPRO: -8.69%	3.17%
100	Apr-18	Apr-18	1	70.00% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 30.00% ProShares UltraPro S&P500 (UPRO)	TMF: -6.71%, UPRO: -0.14%	-4.74%
101	May-18	May-18	1	62.72% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 37.28% ProShares UltraPro S&P500 (UPRO)	TMF: 5.27%, UPRO: 6.46%	5.71%
102	Jun-18	Jun-18	1	47.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 52.81% ProShares UltraPro S&P500 (UPRO)	TMF: 1.49%, UPRO: 1.29%	1.38%
103	Jul-18	Jul-18	1	48.63% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 51.37% ProShares UltraPro S&P500 (UPRO)	TMF: -4.70%, UPRO: 10.73%	3.23%
104	Aug-18	Aug-18	1	51.19% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.81% ProShares UltraPro S&P500 (UPRO)	TMF: 3.36%, UPRO: 9.09%	6.16%
105	Sep-18	Sep-18	1	51.73% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 48.27% ProShares UltraPro S&P500 (UPRO)	TMF: -8.77%, UPRO: 1.20%	-3.96%
106	Oct-18	Oct-18	1	42.62% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 57.38% ProShares UltraPro S&P500 (UPRO)	TMF: -9.11%, UPRO: -20.78%	-15.81%
107	Nov-18	Nov-18	1	72.40% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 27.60% ProShares UltraPro S&P500 (UPRO)	TMF: 4.76%, UPRO: 4.28%	4.63%
108	Dec-18	Dec-18	1	73.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 26.87% ProShares UltraPro S&P500 (UPRO)	TMF: 17.93%, UPRO: -26.25%	6.06%
109	Jan-19	Jan-19	1	74.76% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 25.24% ProShares UltraPro S&P500 (UPRO)	TMF: 0.41%, UPRO: 23.89%	6.34%
110	Feb-19	Feb-19	1	68.65% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 31.35% ProShares UltraPro S&P500 (UPRO)	TMF: -4.52%, UPRO: 9.28%	-0.20%
111	Mar-19	Mar-19	1	49.67% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 50.33% ProShares UltraPro S&P500 (UPRO)	TMF: 17.00%, UPRO: 4.85%	10.88%
112	Apr-19	Apr-19	1	58.70% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 41.30% ProShares UltraPro S&P500 (UPRO)	TMF: -6.56%, UPRO: 11.81%	1.03%
113	May-19	May-19	1	40.35% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 59.65% ProShares UltraPro S&P500 (UPRO)	TMF: 21.11%, UPRO: -18.89%	-2.75%
114	Jun-19	Jun-19	1	65.13% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 34.87% ProShares UltraPro S&P500 (UPRO)	TMF: 1.90%, UPRO: 21.37%	8.69%
115	Jul-19	Jul-19	1	52.22% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF), 47.78% ProShares UltraPro S&P500 (UPRO)	-	-
Its kind off crazy how these allocations jump all over the place. I tried to look at the details to see if I could see any trends as to whether when the allocation to URPO or TMF increases over the peior month if the fund is more likely to see a bump in return and I can't find anything. It just seems really random. I must be missing something.

I'm torn right now between Quarterly rebalance to 40/60 (or 50/50) UPRO or use this 20 day backlook. Again, backtesting looks great, but trying to figure out if there is actually something to this madness :) Or does the volatility shift so quickly that looking back 20 days is pointless so its better to look at aggregate volatility.
Split your portfolio in half and do both?
rascott
Posts: 2450
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott »

tj wrote: Fri Jul 26, 2019 5:07 pm
rascott wrote: Thu Jul 25, 2019 5:23 pm
MoneyMarathon wrote: Wed Jul 24, 2019 5:19 pm
JBeck wrote: Sun Jul 21, 2019 6:41 pm Curious as to if anyone has decided to change their asset allocation based on all the possible alternatives MoneyMarathon has provided
I've actually made my changes. Unlike others in this thread, I haven't started a play money or side bet account. I was able to buy PSLDX in the Roth IRAs at Vanguard and in my 401k by using a Schwab PCRA brokerage window. The fees were $20 x 2 at Vanguard and $49.95 x 1 at Schwab.

I decided that I really like PSLDX (S&P 500 and long-term treasury/corporate/other bonds) in tax-advantaged. Part of the reason I like it is behavioral. It generally hugs the S&P 500 index with some of what might be called "alpha" from using bonds, which is ideal for someone who tends to be happy when not underperforming the market. Another behavioral aspect is that there is no button-pushing. This is huge, we're not robots. I didn't even check the financial news at all in 2018 and didn't know there was a stock correction in December until this summer. Ignorance is bliss, I guess. Another reason is that it was easy to explain and get my spouse on board. Having it go through 2008, for real, and be basically fine is another selling point. Being at PIMCO instead of a tiny ETF provider is another selling point. Not having to wonder about optimal rebalancing strategies or forgetting to do it optimally could be considered a plus. Being able to focus more free time and energy on other, income-generating opportunities is a plus. Not having to worry about what would happen if someone inherited the account and left it alone is a plus.

I also decided that I didn't like PISIX, the international fund. They're a bit too active for my tastes on the bond side, whipping around their duration exposure based on manager decisions, I guess because they have no "secondary index" or duration target like PSLDX (that secondary index and duration target forces the PSLDX guys to be sort-of closet indexers at heart, which is good).

The other reason that I don't like PISIX is that PSLDX is too darn good. It takes up valuable tax-advantaged space that is better used by PSLDX, which throws off more income on the bond side. My goal is actually to have 100% of tax advantaged in PSLDX, while keeping international in taxable. I'm not there yet, need to build up my taxable account more. Currently I'm a a little over 80% of tax advantaged in PSLDX, the rest in the institutional version of VXUS (ex-US world equities). Over time, I'd like to shift to using IXUS in taxable (since it seems somewhat more tax-efficient than VXUS) for my international exposure.

Personal Capital says my allocation now looks like this:

-92.8% Cash
13.95% International Bonds
77.7% US Bonds
17.44% International Stock
80.55% US Stock
3.34% Alternatives (Real Estate, etc.)

My paycheck 401k contributions (traditional and after-tax) are going to the international stock fund.


I can't get this fund (PSLDX) out of my head. Have been thinking about it for the last couple of weeks. And trying to figure out why I shouldn't put basically all my LC blend allocation into this fund (or as much as I can get into it).

Under what scenario will this thing greatly lag the SP500? Beyond inflation spikes.... which would be theoretically temporary? And in 'normal' world how could it not over-perform the index?
Historically it lagged heavily in 2013.
Sorry...I meant over a long(er) time period. 1 year means little to me. Obviously the long duration is going to give you some interest rate risk in the short term, where you could lose serious money with rising rates. But all of these strategies will fail if LTTs go on a very long-term bear run.
rascott
Posts: 2450
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott »

MoneyMarathon wrote: Thu Jul 25, 2019 7:09 pm
rascott wrote: Thu Jul 25, 2019 5:23 pm How would one setup a similar position with ETFs?
The secondary index tracked by PSLDX is the same one tracked by Vanguard's BLV and has a mix of long term treasuries and long term credit. I believe that 35% UPRO / 20% TMF / 45% VCLT would establish a similar position.

-110% cash (-70% from UPRO and -40% from TMF)
105% S&P 500
105% Bonds (57% treasuries and 43% corporate)

To test that, I looked at how they compared historically in PV.

Image

Looks pretty close to me. P1 is 100% PSLDX, and P2 is 35% UPRO / 20% TMF / 45% VCLT.

I can't check this back to 1970 with VCLT because I don't have a historical time series for it, but the spreadsheet does have VCIT (intermediate), so I figure you can maybe just add about 1% give or take to the final CAGR figure, along with a bit more volatility and risk, for taking extra duration on the corporate bond side. This also lets us get a sense of approximately how bad the 1970s would have been for the fund, assuming that the active management did neither good nor harm (it would be a little worse than shown during rising rates, because the numbers are for a VCIT portfolio).

Here is the full time period.

Image

P1 is 35% UPRO / 20% TMF / 45% VCIT (instead of VCLT, I have no data for this)
P2 is 40% UPRO / 60% IEF (intermediate 7-10 yr treasury)
P3 is 40% UPRO / 60% TLT (20+ year treasury)
P4 is 40% UPRO / 60% EDV (extended duration treasury)
P5 is 40% UPRO / 15% TMF / 45% EDV (extended duration treasury)

And here's the worst time period, 1970-1981.

Image

If going the ETF route, it might make sense to tinker a little first to make sure it fits the kind of risks you want to take. Putting less in Direxion and going with EDV on the bond side seems like an attractive choice, if not going for full 3x leverage. If something other than the S&P 500 and extended duration treasuries are wanted, there could be room for that too (like VCLT, in this case).
Thanks for the info. While the performances have tracked closely the exposures look a good bit different via PV. Particularly in duration. And also seems less leveraged than PSLDX.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 »

MotoTrojan wrote: Fri Jul 26, 2019 5:02 pm
caklim00 wrote: Fri Jul 26, 2019 4:33 pm

Are all of the previous months calculations done before the month actually occurs? Meaning, its not just trying to fit after the fact is it?
Correct. It evaluates, adjusts, then sees what happens.
Interestingly even though URTY (R2K) didn't do as well as UPRO it still doesn't look bad using the same 20% target volatility with TMF as the out of market asset.

Code: Select all

Performance statistics for the timing portfolio and benchmark portfolios
Portfolio	Initial Balance	Final Balance	CAGR	Stdev	Best Year	Worst Year	Max. Drawdown	Sharpe Ratio	Sortino Ratio	US Mkt Correlation
Timing Portfolio	$10,000	$56,183	22.51%	25.84%	76.63%	-19.70%	-32.46% 	0.90	1.48	0.20
Buy & Hold Portfolio	$10,000	$37,357	16.77%	49.63%	147.87%	-39.61%	-64.96% 	0.56	0.87	0.91
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

caklim00 wrote: Fri Jul 26, 2019 9:57 pm
MotoTrojan wrote: Fri Jul 26, 2019 5:02 pm
caklim00 wrote: Fri Jul 26, 2019 4:33 pm

Are all of the previous months calculations done before the month actually occurs? Meaning, its not just trying to fit after the fact is it?
Correct. It evaluates, adjusts, then sees what happens.
Interestingly even though URTY (R2K) didn't do as well as UPRO it still doesn't look bad using the same 20% target volatility with TMF as the out of market asset.

Code: Select all

Performance statistics for the timing portfolio and benchmark portfolios
Portfolio	Initial Balance	Final Balance	CAGR	Stdev	Best Year	Worst Year	Max. Drawdown	Sharpe Ratio	Sortino Ratio	US Mkt Correlation
Timing Portfolio	$10,000	$56,183	22.51%	25.84%	76.63%	-19.70%	-32.46% 	0.90	1.48	0.20
Buy & Hold Portfolio	$10,000	$37,357	16.77%	49.63%	147.87%	-39.61%	-64.96% 	0.56	0.87	0.91
TMF was a huge component of returns in this time period.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by interestediniras »

305pelusa wrote: Thu Jul 25, 2019 7:47 pm
MotoTrojan wrote: Thu Jul 25, 2019 5:17 pm Even if StDev isn't a perfect measure or risk, it is a good measure of volatility, no?
I have personal definitions for those concepts but in general, they're open to interpretation. My point doesn't hinge on that at all though. It's as follows:

Daily market returns are nowhere near normally distributed. So applying St. Dev. to such a sample is literally meaningless. St. Dev. assumes normality to make sense. Using St. Dev. on a non-normal distribution is like taking the cosine of a weight (lbs). Sure, you'll get something, but it's just meaningless.
This is nonsense. Statistical moments, of which variance (= stdev squared) are defined for probability distributions in general, and the second moment, variance, can be used to make very general and powerful statements about distributions not necessarily normal, most notably through Chebyshev's inequality, but also through a wide variety of other analytic results. It is an extremely natural quantity, being the most "obvious" way to measure deviation from the mean in a differentiable form.

Perhaps you are referring to the autocorrelation of daily returns, which is a separate topic entirely.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Steve Reading »

interestediniras wrote: Fri Jul 26, 2019 10:35 pm
305pelusa wrote: Thu Jul 25, 2019 7:47 pm
MotoTrojan wrote: Thu Jul 25, 2019 5:17 pm Even if StDev isn't a perfect measure or risk, it is a good measure of volatility, no?
I have personal definitions for those concepts but in general, they're open to interpretation. My point doesn't hinge on that at all though. It's as follows:

Daily market returns are nowhere near normally distributed. So applying St. Dev. to such a sample is literally meaningless. St. Dev. assumes normality to make sense. Using St. Dev. on a non-normal distribution is like taking the cosine of a weight (lbs). Sure, you'll get something, but it's just meaningless.
This is nonsense. Statistical moments, of which variance (= stdev squared) are defined for probability distributions in general, and the second moment, variance, can be used to make very general and powerful statements about distributions not necessarily normal, most notably through Chebyshev's inequality, but also through a wide variety of other analytic results. It is an extremely natural quantity, being the most "obvious" way to measure deviation from the mean in a differentiable form.

Perhaps you are referring to the autocorrelation of daily returns, which is a separate topic entirely.
I'm referring to the fact that St Dev perfectly defines the spread ("risk" or "volatility") of a normal distribution. When it's not normal, the St Dev does not perfectly define that since there are additional moments.

The utility of St Dev in a non-normal distribution is highly dependent on what the distribution even is. When you only have 20 samples, you WILL end up with extremely funky distributions (uniform, fat tails, extreme skewness,etc). I'm talking about distributions where even the mean is hardly appropriate as a measure of central tendency (yet that's what you use to calculate the St Dev). But do you see posters here graphing 20 days of volatilities to see their shapes? Running normality tests? I sure don't.

My question was just to get a feel for what level of rigor had been applied to the lookback strategy. I believe I have gotten my answer.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo »

305pelusa wrote: Fri Jul 26, 2019 11:13 am As for VIX correlation; I don't believe your statements for a second. If anything, VIX should be negatively correlated with market returns. Please offer an explanation as to why increased volatility in options (VIX) should be positively correlated with market returns. Thanks
p261 of Asset Management.

The simple answer to your question is that when volatility increases, markets make more returns (up or down), but over the long run stock markets go up more than down, so higher volatility = higher beta = higher returns.

Of course, events like the GFC don't follow the rule, but they are a tiny tiny minority of the days when you are comparing correlations of a large sample set; meaning the correlation is positive as a whole because market returns are up as a whole. During recessions, the correlation is unsurprisingly negative, but that's because... returns are negative during recessions!

But (i) vol targeting reduces the 'leverage effect' and hence increases returns, and (ii) during times of market turmoil, the drawdown minimisation of volatility targeting reduces left-tail risks. Both of these are well articulated in the paper by CR Havey, et al. As an additional third point, since volatility forecasts volatility, leverage drag is increased when there is high volatility, compounding the first benefit ;)

Everyone knows that returns are not a normal distribution, but St Dev, as well as variance is still a useful measure. It doesn't have to be perfect to be useful. I present the following:

Image

Close enough.

Statistical or technical superiority is not a path to strong returns, and I'm not sure why you think minor technical arguments can discredit decades of investment research, including universally accepted principles like volatility targeting. This is like you arguing that you should use the geometric mean vs arithmetic mean, or other pointless quibble. It doesn't matter.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo »

305pelusa wrote: Fri Jul 26, 2019 11:45 pm The utility of St Dev in a non-normal distribution is highly dependent on what the distribution even is. When you only have 20 samples, you WILL end up with extremely funky distributions (uniform, fat tails, extreme skewness,etc). I'm talking about distributions where even the mean is hardly appropriate as a measure of central tendency (yet that's what you use to calculate the St Dev). But do you see posters here graphing 20 days of volatilities to see their shapes? Running normality tests? I sure don't.
Absolutely. All of this has been extensively researched.

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

Post by Steve Reading »

coingaroo wrote: Fri Jul 26, 2019 11:49 pm
305pelusa wrote: Fri Jul 26, 2019 11:13 am As for VIX correlation; I don't believe your statements for a second. If anything, VIX should be negatively correlated with market returns. Please offer an explanation as to why increased volatility in options (VIX) should be positively correlated with market returns. Thanks
p261 of Asset Management.

The simple answer to your question is that when volatility increases, markets make more returns (up or down), but over the long run stock markets go up more than down, so higher volatility = higher beta = higher returns.

Of course, events like the GFC don't follow the rule, but they are a tiny tiny minority of the days when you are comparing correlations of a large sample set; meaning the correlation is positive as a whole because market returns are up as a whole. During recessions, the correlation is unsurprisingly negative, but that's because... returns are negative during recessions!

But (i) vol targeting reduces the 'leverage effect' and hence increases returns, and (ii) during times of market turmoil, the drawdown minimisation of volatility targeting reduces left-tail risks. Both of these are well articulated in the paper by CR Havey, et al. As an additional third point, since volatility forecasts volatility, leverage drag is increased when there is high volatility, compounding the first benefit ;)

Everyone knows that returns are not a normal distribution, but St Dev, as well as variance is still a useful measure. It doesn't have to be perfect to be useful. I present the following:

Image

Close enough.

Statistical or technical superiority is not a path to strong returns, and I'm not sure why you think minor technical arguments can discredit decades of investment research, including universally accepted principles like volatility targeting. This is like you arguing that you should use the geometric mean vs arithmetic mean, or other pointless quibble. It doesn't matter.
What have you graphed there? The distribution of monthly returns of the S &P 500 since inception?

coingaroo wrote: Sat Jul 27, 2019 12:13 am
305pelusa wrote: Fri Jul 26, 2019 11:45 pm The utility of St Dev in a non-normal distribution is highly dependent on what the distribution even is. When you only have 20 samples, you WILL end up with extremely funky distributions (uniform, fat tails, extreme skewness,etc). I'm talking about distributions where even the mean is hardly appropriate as a measure of central tendency (yet that's what you use to calculate the St Dev). But do you see posters here graphing 20 days of volatilities to see their shapes? Running normality tests? I sure don't.
Absolutely. All of this has been extensively researched.

Image
I'll be honest, I have no idea what those graphs are conveying. Could you break it down for me?

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

Post by HEDGEFUNDIE »

Someone explain to me why this “volatility momentum” can be trusted as a persistent phenomenon.

What is the risk-based or behavioral-based explanation?
Last edited by HEDGEFUNDIE on Sat Jul 27, 2019 12:53 am, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo »

305pelusa wrote: Sat Jul 27, 2019 12:31 am I'll be honest, I have no idea what those graphs are conveying. Could you break it down for me?

Thanks
That volatility targeting* improves sharpe ratios, reduces vol of vol, and reduces the mean shortfalls for equities as a whole, as well as individual sectors of equities (barring exceptions that can be attributed to probability).

* when using an exponentially weighted 20 day lookback. Not exactly what PV does, but close enough.

Yes, first chart is distribution of monthly returns since S&P inception. As you can see, it's very close to a normal distribution, with some skewness and kurtosis but that's the market.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo »

HEDGEFUNDIE wrote: Sat Jul 27, 2019 12:37 am Someone explain to me why “volatility momentum” can be trusted as a persistent phenomenon.

What is the risk-based or behavioral-based explanation?
Because of the mathematics of the volatility drag, or the leverage effect.

The more volatile an asset is, the less return you get due to the drag. Thus, by aiming holding the volatility stable, you optimize to minimize volatility drag, including taking less when it is excessive and taking more when it is low (meaning you can get more net returns, per unit of risk).

The alpha you get from this comes from those who don't vol target, as they indirectly pay for it through their (excess) volatility drag.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Steve Reading »

coingaroo wrote: Sat Jul 27, 2019 12:51 am
305pelusa wrote: Sat Jul 27, 2019 12:31 am I'll be honest, I have no idea what those graphs are conveying. Could you break it down for me?

Thanks
That volatility targeting* improves sharpe ratios, reduces vol of vol, and reduces the mean shortfalls for equities as a whole, as well as individual sectors of equities (barring exceptions that can be attributed to probability).

* when using an exponentially weighted 20 day lookback. Not exactly what PV does, but close enough.

Yes, first chart is distribution of monthly returns since S&P inception. As you can see, it's very close to a normal distribution, with some skewness and kurtosis but that's the market.
Lmao let me get this right:

I claim 20 days of trading will not be anywhere near normally distributed. Once you look at decades, it will be close because of the Central Limit Theorem. But when you zoom in (20 days) it will not be.

You claim is it will be close enough, that I'm being pedantic with definitions. Your proof that it's close enough?
The monthly returns distribution since 1957. So the distribution of ~15000 trading days. :oops:

As to your second graph, I am asking if the normality of 20 days lookback (the thing you apply St Dev to) is being analyzed. You said it has been and provide a graph of its outperformance.

I get that it outperformed. My questions have zero to do with that.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

coingaroo wrote: Sat Jul 27, 2019 12:59 am
HEDGEFUNDIE wrote: Sat Jul 27, 2019 12:37 am Someone explain to me why “volatility momentum” can be trusted as a persistent phenomenon.

What is the risk-based or behavioral-based explanation?
Because of the mathematics of the volatility drag, or the leverage effect.

The more volatile an asset is, the less return you get due to the drag. Thus, by aiming holding the volatility stable, you optimize to minimize volatility drag, including taking less when it is excessive and taking more when it is low (meaning you can get more net returns, per unit of risk).

The alpha you get from this comes from those who don't vol target, as they indirectly pay for it through their (excess) volatility drag.
This explains why I should avoid volatility but does not explain why the previous period’s volatility would tend to continue into the next period.

In fact “the mathematics of volatility” actually indicate that the next’s period volatility should trend away from the previous period’s volatility. If the market drops -5% on one day, the next day it is highly likely to drop less than that (or even to increase). Otherwise we would not have the normal distribution of returns that you graphed above.

A constant 40/60 allocation should capture the “mathematics” of the standard deviation better, because it assumes that returns and volatility are mean reverting.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

Ok I think I understand what’s going on.

Market returns are normally distributed around the mean, which is positive. Therefore a volatility-trend-following strategy would tilt toward UPRO more strongly and more often than the 40/60 strategy. And this will generate higher returns than 40/60 most of the time.

...until the market unexpectedly crashes. At which point you don’t get the benefit of the TMF insurance because you have loaded up on UPRO.

At bottom volatility targeting is just market timing. Which this entire strategy was constructed to avoid.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by hdas »

HEDGEFUNDIE wrote: Sat Jul 27, 2019 8:44 am Ok I think I understand what’s going on.

Market returns are normally distributed around the mean, which is positive. Therefore a volatility-trend-following strategy would tilt toward UPRO more strongly and more often than the 40/60 strategy. And this will generate higher returns than 40/60 most of the time.

...until the market unexpectedly crashes. At which point you don’t get the benefit of the TMF insurance because you have loaded up on UPRO.

At bottom volatility targeting is just market timing. Which this entire strategy was constructed to avoid.
It all depends how fast the strategy adapts. Markets don’t crash from low vol regime (best predictor of vol tomorrow is today’s). But it all depends on the specifications of the model. The good people are updating every tick or book update. I doubt fellow travelers with excel and P. Visualizer can keep up. Cheers :greedy
....
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

hdas wrote: Sat Jul 27, 2019 9:10 am
HEDGEFUNDIE wrote: Sat Jul 27, 2019 8:44 am Ok I think I understand what’s going on.

Market returns are normally distributed around the mean, which is positive. Therefore a volatility-trend-following strategy would tilt toward UPRO more strongly and more often than the 40/60 strategy. And this will generate higher returns than 40/60 most of the time.

...until the market unexpectedly crashes. At which point you don’t get the benefit of the TMF insurance because you have loaded up on UPRO.

At bottom volatility targeting is just market timing. Which this entire strategy was constructed to avoid.
It all depends how fast the strategy adapts. Markets don’t crash from low vol regime (best predictor of vol tomorrow is today’s). But it all depends on the specifications of the model. The good people are updating every tick or book update. I doubt fellow travelers with excel and P. Visualizer can keep up. Cheers :greedy
Great, so I’ll get rid of all of my bonds then. :oops:
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by caklim00 »

HEDGEFUNDIE wrote: Sat Jul 27, 2019 8:44 am Ok I think I understand what’s going on.

Market returns are normally distributed around the mean, which is positive. Therefore a volatility-trend-following strategy would tilt toward UPRO more strongly and more often than the 40/60 strategy. And this will generate higher returns than 40/60 most of the time.

...until the market unexpectedly crashes. At which point you don’t get the benefit of the TMF insurance because you have loaded up on UPRO.

At bottom volatility targeting is just market timing. Which this entire strategy was constructed to avoid.
Interesting thing is in 2011 the volatility strategy did exactly what it was supposed to. It went light on UPRO. Its the only reason I'm even considering it for my play 10K money. My concern would be that the crash would happen before the portfolio can adjust since we are talking monthly here.

Code: Select all

17	May 2011	May 2011	1	77.68% ProShares UltraPro S&P500 (UPRO)
22.32% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	-0.74%	-3.93%
18	Jun 2011	Jun 2011	1	61.96% ProShares UltraPro S&P500 (UPRO)
38.04% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	-6.45%	-5.87%
19	Jul 2011	Jul 2011	1	40.96% ProShares UltraPro S&P500 (UPRO)
59.04% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	5.22%	-6.39%
20	Aug 2011	Aug 2011	1	42.82% ProShares UltraPro S&P500 (UPRO)
57.18% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	6.61%	-21.09%
21	Sep 2011	Sep 2011	1	14.56% ProShares UltraPro S&P500 (UPRO)
85.44% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	32.32%	-20.69%
22	Oct 2011	Oct 2011	1	23.19% ProShares UltraPro S&P500 (UPRO)
76.81% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	-2.32%	32.61%
23	Nov 2011	Nov 2011	1	22.73% ProShares UltraPro S&P500 (UPRO)
77.27% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	3.02%	-3.35%
24	Dec 2011	Dec 2011	1	21.73% ProShares UltraPro S&P500 (UPRO)
78.27% Direxion Daily 20+ Yr Trsy Bull 3X ETF (TMF)	7.90%	2.30%
Something happens with the volatility on UPRO between May - August. By September UPRO is down to 14.56% allocation
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Tozmo »

Are UPRO and TMF available in a Schwab PCRA? I've held off going the PCRA route because I have Vanguard funds in the 403/401. I don't really want to sign up for it and pay the extra fee(s) if they aren't there. Or any other legit 3x ETF.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Hydromod »

HEDGEFUNDIE wrote: Sat Jul 27, 2019 8:44 am Ok I think I understand what’s going on.

Market returns are normally distributed around the mean, which is positive. Therefore a volatility-trend-following strategy would tilt toward UPRO more strongly and more often than the 40/60 strategy. And this will generate higher returns than 40/60 most of the time.

...until the market unexpectedly crashes. At which point you don’t get the benefit of the TMF insurance because you have loaded up on UPRO.

At bottom volatility targeting is just market timing. Which this entire strategy was constructed to avoid.
The inverse volatility scheme with uprosim and tmfsim from 1987 on averaged 40 percent uprosim. I'm not sure how 40 percent is more than 40 percent. That's a straw argument.

On slower market adjustments the volatility weights typically took uprosim below 40 percent. It didn't handle Black Friday well, which is still a problem.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

HEDGEFUNDIE wrote: Sat Jul 27, 2019 8:44 am Ok I think I understand what’s going on.

Market returns are normally distributed around the mean, which is positive. Therefore a volatility-trend-following strategy would tilt toward UPRO more strongly and more often than the 40/60 strategy. And this will generate higher returns than 40/60 most of the time.

...until the market unexpectedly crashes. At which point you don’t get the benefit of the TMF insurance because you have loaded up on UPRO.

At bottom volatility targeting is just market timing. Which this entire strategy was constructed to avoid.
Bingo. Most of the outperformance came from the GFC on. It did reduce drawdown but that could be luck (and the nature of the length of the decline) but it also skewed towards UPRO during the steady bull; it closely mirrored a 55/45 quarterly rebalance approach. Depending on how this bull ends you could give that up pretty quickly.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by schismal »

I haven't introduced any sort of volatility trending to my implementation yet (and I'm leaning against doing so), but I have been following the numbers the past few months. One concern is that 20 days may be an insufficient window to react to sudden volatility changes. For the July data, at least, there is a significant difference between the calculated allocations when using a 20 day lookback and a 7 day lookback.

One one hand, 7 data points is very few. With limited data, the less useful standard deviation might be when dealing with skewed returns, and the more likely you're measuring noise moreso than trends. On the other, if you're concerned about volatility reaction time, one might be inclined to weigh recent returns more heavily. But here, a 15-20% difference in allocation would be a pretty significant gamble.

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

Post by Steve Reading »

Graphed schismal's data for 20 days of returns. Nowhere even close to normally distributed. Actually contains serious negative skewness. Not too surprising since the median is almost twice the mean.

Whether you think it's appropriate to use St Dev. as a measure of risk on such kinds of distributions is up to you; it's your hard-earned money and you do with it as you please. But at least this should settle the argument with coingaroo about how it's "close enough" and that I think this is a "minor technical argument". I don't think it's minor and I stand by that.

That's all I have to say on this topic.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo »

305pelusa wrote: Sun Jul 28, 2019 7:55 am Graphed schismal's data for 20 days of returns. Nowhere even close to normally distributed. Actually contains serious negative skewness. Not too surprising since the median is almost twice the mean.
ANY 20 random data points, even of a normal distribution... is not going to appear to be normally distributed*. That's um... completely expected? That is what happens when you randomly sample 20 points of data. Does that mean stdev is invalid for measuring volatility? No.

I suggest you plot 20 points of Gaussian noise and see what it looks like ...

* especially when you have 3x leveraged funds with leverage drag, etc; by definition it won't be a normal distribution. This is why for volatility targeting, I use underlying return indexes, and not those of whatever instruments I choose to execute my strategy.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by no simpler »

305pelusa wrote: Thu Jul 25, 2019 9:19 pm
MotoTrojan wrote: Thu Jul 25, 2019 7:55 pm
305pelusa wrote: Thu Jul 25, 2019 7:47 pm
MotoTrojan wrote: Thu Jul 25, 2019 5:17 pm Even if StDev isn't a perfect measure or risk, it is a good measure of volatility, no?
I have personal definitions for those concepts but in general, they're open to interpretation. My point doesn't hinge on that at all though. It's as follows:

Daily market returns are nowhere near normally distributed. So applying St. Dev. to such a sample is literally meaningless. St. Dev. assumes normality to make sense. Using St. Dev. on a non-normal distribution is like taking the cosine of a weight (lbs). Sure, you'll get something, but it's just meaningless.

So then you're grabbing that number and using it to guide Asset Allocation in some way (using inverse volatility formulas). It's the classic "garbage in, garbage out". The formula and concepts (like risk parity) might be excellent but if the input is meaningless, so is the answer.
How would you articulate short-term volatility then? I don't quite like your example:

If I take the cosine of 5 weights, it still makes no sense. But if I take the StDev of 5 years of returns, it does :P .
It is more appropriate to approximate daily returns with a Cauchy distribution (aka "fat-tailed" normal distribution). These distributions can be explained by the mean and a parameter that defines how fat the tails are (known as "alpha"). This form of distribution is sometimes referred to as "wild variation" or "power law" distribution.
Alpha is extremely difficult to pin down. A small change in alpha leads to big changes in the distribution so uncertainty is problematic.

I don't have advice for you as to how to marry the concepts of Cauchy distributions and some quantitative level of "risk" or "volatility". All I know is that I mostt definitely wouldn't use the Standard deviation of the previous month of trading for anything at all.

As for my analogy, its purpose is to simply demonstrate the absurdity of applying a mathematical function to objects that don't fulfill underlying assumptions. Two examples specifically in probability:

- Deriving probabilities assuming variables are independent when they aren't.
- Using the median (instead of the mean) to derive an R^2 value.

You will get answers. But they're "meaningless". Does that make sense?
Dude, lots of us know this. I'm a data scientist and I've also read Misbehaviour of Markets. It sounds like you just learned this stuff after reading Taleb or Mandlebrot, or took a course in school.
Risk parity has less tail risk, not more. And we're empirically simulating risk based on max drawdowns.

As far as using trailing variance - it's very predictive of next month variance, and empirically, it improves risk adjusted return as an input to vol targeting, including tail risk. Even if you cannot use these variance estimates to reliably estimate the distribution of returns, especially extreme movements, this "wrong" model improves returns.

I did suggest to use the VIX and TYVIX instead of historical variance, which include sophisticated market participants fears about higher moments of return distributions, including tail risk. The options market is highly efficient and takes into account much more sophisticated models than just the Cauchy distribution, which is also not a completely correct distribution.

Remember that a model doesn't have to be right to be useful. "All models are wrong, but some are useful" -George E.P. Box
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coingaroo
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo »

no simpler wrote: Sun Jul 28, 2019 8:45 am Dude, lots of us know this. I'm a data scientist and I've also read Misbehaviour of Markets. It sounds like you just learned this stuff after reading Taleb or Mandlebrot, or took a course in school.
Risk parity has less tail risk, not more. And we're empirically simulating risk based on max drawdowns.

As far as using trailing variance - it's very predictive of next month variance, and empirically, it improves risk adjusted return as an input to vol targeting, including tail risk. Even if you cannot use these variance estimates to reliably estimate the distribution of returns, especially extreme movements, this "wrong" model improves returns.

I did suggest to use the VIX and TYVIX instead of historical variance, which include sophisticated market participants fears about higher moments of return distributions, including tail risk. The options market is highly efficient and takes into account much more sophisticated models than just the Cauchy distribution, which is also not a completely correct distribution.

Remember that a model doesn't have to be right to be useful. "All models are wrong, but some are useful" -George E.P. Box
Thank you. 100% agreed. In the high noise to signal worlds of investment discussions, it's always great to get educated and well informed opinions.

As you linked earlier, modern volatility forecasting models include things like GARCH models, etc. Of particular note is GARCH's ability to capture the leverage effect.

As a final counterpoint that will hopefully settle the variance or stdev does not measure volatility... the VIX index itself is expressed in terms of standard deviation. Yeah, tell CBOE that.

Again, this whole discussion is like arguing about arithmetic returns vs geometric returns.
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