HEDGEFUNDIE's excellent adventure Part II: The next journey

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mrspock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by mrspock »

BogleBobby wrote: Tue Aug 04, 2020 8:09 pm Regarding the question "how much more return does TMF have with interest rates so low?", I'll point out a few things:

This was a concern when this thread first started and TMF has returned 64% over the last year.

Interest rates have been falling for a long time (hundreds of years if you go back far enough) and part of the conviction of this strategy is that they will continue to fall or stay low. If you think they will start going up significantly, this strategy isn't for you.

See an article here about the fall of interest rates over time: https://www.visualcapitalist.com/700-ye ... est-rates/

TMF still has plenty of return left because interest rates can still fall further. We still have positive interest rates on the 20-year and 30-year. Interest rates can go negative.

However, you don't necessarily need a big return from TMF for this strategy to succeed. Instead, you need it to continue to be negatively correlated with equities during times of crisis.

Interest rates being really low is a good thing for this strategy because long term bond funds are more sensitive to interest rate changes when interest rates are low due to bond convexity. You want TMF to be more volatile to complement your equity holdings. See the article here (which has been linked before in this discussion): https://portfoliocharts.com/2019/05/27/ ... convexity/
This. I've been doing this for over 18 months now, a big way you appear to make money is by the way this thing swinging one way for one quarter, rebalancing in after 3 months, swinging the other way the next quarter, and whatever gains you got during the swing are "captured" during the rebalance. It's a bit hard to describe, but basically you can have a quarter where UPRO soars, you end up going from 50/50 to 75/25 UPRO/TMF, then you rebalance back to 50/50. The next quarter it goes the other way 25/75, but because the UPRO gains from the prior quarter were captured already, you lose some UPRO, but you gain huge on TMF with your old UPRO gains.

Even the big losses folks fear on UPRO, people need to realize that TMF will begin to rocket higher as it did in March, and the pain from UPRO diminishes over time as the subsequent big drops are on an ever shrinking proportion of your UPRO holdings, while the TMF gains are on an ever increasing proportion. In March I was just stunned at this effect, it blew my mind and was fun to watch. Secondly, TMF did not fall back as fast as UPRO began to recover, this gave time for the rebalance to kick in and capture the TMF gains, replenishing UPRO for the duration of its recovery. The confluence of TMF or UPRO momentum combined with rebalance events really matters with this strategy.

Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.
keith6014
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by keith6014 »

rascott wrote: Wed Aug 05, 2020 9:07 pm So I've now in my 4thv quarter of running this similar strategy using a TDA futures account. Target is 50/50 stocks/ bonds, 3x leveraged. Treasury bonds with similar total duration as TMF. Stocks are a combo of VOO + micro emini futures. Bonds are all Treasury futures.

Up approx 60% since late Aug/ early Sept. Don't have the exact starting date in front of me. But seems to have tracked the LETF strategy really closely.

I have a lot of cash built up from the daily settlements, so next month of the roll, I'll likely buy more VOO and drop an emini contract or two. It takes me about 20 mins every qtr to do the calculations of what I need and then to roll the contracts.
Thanks for the update.Hopefully, next year when i have more $, I will try this in my taxable. ATM, doing LETFS in taxable.
tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

mrspock wrote: Thu Aug 06, 2020 4:41 am Even the big losses folks fear on UPRO, people need to realize that TMF will begin to rocket higher as it did in March, and the pain from UPRO diminishes over time as the subsequent big drops are on an ever shrinking proportion of your UPRO holdings, while the TMF gains are on an ever increasing proportion. In March I was just stunned at this effect, it blew my mind and was fun to watch. Secondly, TMF did not fall back as fast as UPRO began to recover, this gave time for the rebalance to kick in and capture the TMF gains, replenishing UPRO for the duration of its recovery. The confluence of TMF or UPRO momentum combined with rebalance events really matters with this strategy.
It did well, and it recovered fast, however there were a couple of days where the -1 correlation was blown to pieces. Those were dark days. Article about it here: Risk Parity Trade Made Famous by Ray Dalio Is Now Ringing Alarms. If it wasn't for the monstrous liquidity injections I might be flipping burgers right now, because a couple more days without the volatility hedge functioning and the strategy would be dust.
Veritas2 wrote: Wed Aug 05, 2020 9:23 pm Does anyone have more than 50% of their original portfolio in this journey?
About 95% for me.

Is everyone here strict with re-balancing? I'm not sticking to a set schedule and tend to put cash to work when it comes in. I may have forgotten about the importance of sticking to a frequency.
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PicassoSparks
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by PicassoSparks »

rascott wrote: Wed Aug 05, 2020 9:01 pm
Yep, UPRO down 25% though July, while SP500 up 2%. That's some wicked volatility decay.
Just to build on this a bit more: YTD the strategy is up ~21% if you rebalance annually and ~45% if you rebalance quarterly, despite UPRO being underwater. This is all partially about luck and timing, but it surprised me to discover this. Diversification!
TNWoods
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TNWoods »

You are no more supposed to be looking at this strategy short term than you are your normal Boglehead portfolio.

I started a year and 3 weeks ago, and I am up 87%.

(Rebalanced only 3 times, once a few days ago.)

TNWoods
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

mrspock wrote: Thu Aug 06, 2020 4:41 am Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.
I've had very good success with my implementation of this strategy (25% target volatility using 1 month lookback period) and have beaten the pants off an un-leveraged position, but it's nothing if not highly volatile.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
isubrama
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by isubrama »

mrspock wrote: Thu Aug 06, 2020 4:41 am
BogleBobby wrote: Tue Aug 04, 2020 8:09 pm Regarding the question "how much more return does TMF have with interest rates so low?", I'll point out a few things:

This was a concern when this thread first started and TMF has returned 64% over the last year.

Interest rates have been falling for a long time (hundreds of years if you go back far enough) and part of the conviction of this strategy is that they will continue to fall or stay low. If you think they will start going up significantly, this strategy isn't for you.

See an article here about the fall of interest rates over time: https://www.visualcapitalist.com/700-ye ... est-rates/

TMF still has plenty of return left because interest rates can still fall further. We still have positive interest rates on the 20-year and 30-year. Interest rates can go negative.

However, you don't necessarily need a big return from TMF for this strategy to succeed. Instead, you need it to continue to be negatively correlated with equities during times of crisis.

Interest rates being really low is a good thing for this strategy because long term bond funds are more sensitive to interest rate changes when interest rates are low due to bond convexity. You want TMF to be more volatile to complement your equity holdings. See the article here (which has been linked before in this discussion): https://portfoliocharts.com/2019/05/27/ ... convexity/
This. I've been doing this for over 18 months now, a big way you appear to make money is by the way this thing swinging one way for one quarter, rebalancing in after 3 months, swinging the other way the next quarter, and whatever gains you got during the swing are "captured" during the rebalance. It's a bit hard to describe, but basically you can have a quarter where UPRO soars, you end up going from 50/50 to 75/25 UPRO/TMF, then you rebalance back to 50/50. The next quarter it goes the other way 25/75, but because the UPRO gains from the prior quarter were captured already, you lose some UPRO, but you gain huge on TMF with your old UPRO gains.

Even the big losses folks fear on UPRO, people need to realize that TMF will begin to rocket higher as it did in March, and the pain from UPRO diminishes over time as the subsequent big drops are on an ever shrinking proportion of your UPRO holdings, while the TMF gains are on an ever increasing proportion. In March I was just stunned at this effect, it blew my mind and was fun to watch. Secondly, TMF did not fall back as fast as UPRO began to recover, this gave time for the rebalance to kick in and capture the TMF gains, replenishing UPRO for the duration of its recovery. The confluence of TMF or UPRO momentum combined with rebalance events really matters with this strategy.

Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.
Thanks for sharing your view on rebalance. What's your rebalance schedule ? quarter end / quarter beginning / fixed date ? Thanks.
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Dr. Long
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Dr. Long »

Just hit 100% return today:

https://ibb.co/4MLYx68

OG 60/40 TMF/UPRO blend, quarterly rebals, began July of last year
"(It's) the economy, stupid," - James Carville
BogleBobby
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BogleBobby »

Well done! The 2020 dip to a loss overall, and then launch to a huge gain, is crazy!
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7th_Diagram
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 7th_Diagram »

willthrill81 wrote: Thu Aug 06, 2020 11:10 am
mrspock wrote: Thu Aug 06, 2020 4:41 am Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.
I've had very good success with my implementation of this strategy (25% target volatility using 1 month lookback period) and have beaten the pants off an un-leveraged position, but it's nothing if not highly volatile.
Willthrill-
Months back when you posted your approach with this strategy, it drew my interest hence I tested it out for myself. A week later I abandoned HF's approach and implemented yours with a couple of differences.

1)I swapped out UPRO for TQQQ
2) modified the target volatility to 35% target volatility using a one month look back.

I'm a bit more aggressive due to having a government pension in addition to a 401k and 457b. If not for that (and my belief in the NASDAQ 100) I would have exactly followed your approach. I appreciate your sharing
"You have to understand, most people are not ready to be unplugged,and many of them are so injured, so hopelessly dependent upon the system, that they will fight to protect it." | ~Morpheus
Alaric
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Alaric »

Several related recent historical backtests follow here (actual UPRO and TMF results, not the sim data) to address a couple a points at once. One is the oft-made claim that TMF and the excellent adventure will fail in an era of rising rates, and the other point is just to numerically demonstrate what mrspock and others have been pointing out about quarterly rebalancing providing a lot of the return.

First is a brief 37-month period from December, 2015 through December, 2018. Why that seemingly cherry-picked and short range? Because the Fed raised rates nine times in those 3+ years, 25 bp at a time, from near zero. Below is how 100% TMF, 100% UPRO, and 55/45 UPRO/TMF with quarterly rebalancing (calendar-aligned) fared:

Image

Even in a time of rising rates TMF in isolation eked out a small positive return. The overall 55/45 returned (2.9%) less annually than the pure UPRO did, but 11.75% more than pure TMF. The rebalancing made the 55/45 adventure a lot more successful than an unbalanced weighted average would have been.

Extending the hypothetical adventurer's portfolio that had begun in December, 2015 through July, 2020 (by March, 2020, interest rates had returned to the near zero they had been at prior to December, 2015) produces an excellent example of the return boost from the quarterly rebalancing:

Image

TMF and UPRO had similar good results over this 4⅔ period, but the 55/45 blend rebalanced quarterly beat each individual component by over 10% CAGR. With a good deal less volatility, a lower max drawdown, and much higher Sharpe and Sortino Ratios.

The last example demonstrates what the same strategy as above but without any rebalancing would have looked like, again from 201512 through 202007:

Image

The non-rebalanced 55/45 would still be preferable to either in isolation as far as having noticeably less volatility and a better max drawdown than UPRO or TMF alone, but the return is just a 55/45 weighted return of UPRO's and TMF's returns. The rebalancing juices it up from a $14,350 profit in less than five years to $26,805.
Semantics
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

Alaric wrote: Thu Aug 06, 2020 2:29 pma brief 37-month period from December, 2015 through December, 2018. Why that seemingly cherry-picked and short range? Because the Fed raised rates nine times in those 3+ years, 25 bp at a time, from near zero. Below is how 100% TMF, 100% UPRO, and 55/45 UPRO/TMF with quarterly rebalancing (calendar-aligned) fared:
Even though the Fed raised short-term rates during that period, the 30-year rate did not increase, so that's why TMF had a positive return. Given that expected inflation ought to be higher now than in 2018, shouldn't we expect the 30-year yield to rise and price that in? That presumably depends on how strongly the Fed chooses to do yield curve control. But if inflation rises to say 3%, would the Fed really try to keep the 30-year yield at 1.2%?
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mrspock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by mrspock »

isubrama wrote: Thu Aug 06, 2020 11:48 am ...
Thanks for sharing your view on rebalance. What's your rebalance schedule ? quarter end / quarter beginning / fixed date ? Thanks.
I do it quarterly, on the first trading day of the new quarter. I also do the vanilla 50/50 version of this, slightly lower returns but lower volatility as well. Mentally, I find it easier to handle as when UPRO is above 50% I’m losing my gains, and when it dips below 50% TMF typically starts to rise making the portfolio neutral or very minimal losses (often less than pure s&p 500).
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

7th_Diagram wrote: Thu Aug 06, 2020 2:14 pm
willthrill81 wrote: Thu Aug 06, 2020 11:10 am
mrspock wrote: Thu Aug 06, 2020 4:41 am Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.
I've had very good success with my implementation of this strategy (25% target volatility using 1 month lookback period) and have beaten the pants off an un-leveraged position, but it's nothing if not highly volatile.
Willthrill-
Months back when you posted your approach with this strategy, it drew my interest hence I tested it out for myself. A week later I abandoned HF's approach and implemented yours with a couple of differences.

1)I swapped out UPRO for TQQQ
2) modified the target volatility to 35% target volatility using a one month look back.

I'm a bit more aggressive due to having a government pension in addition to a 401k and 457b. If not for that (and my belief in the NASDAQ 100) I would have exactly followed your approach. I appreciate your sharing
I'm glad that I was able to be of some help.

I too have modified the approach slightly to include a few additional tickers, but I still use a 1 month lookback. I might increase the target volatility as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

willthrill81 wrote: Thu Aug 06, 2020 4:31 pm
7th_Diagram wrote: Thu Aug 06, 2020 2:14 pm
willthrill81 wrote: Thu Aug 06, 2020 11:10 am
mrspock wrote: Thu Aug 06, 2020 4:41 am Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.
I've had very good success with my implementation of this strategy (25% target volatility using 1 month lookback period) and have beaten the pants off an un-leveraged position, but it's nothing if not highly volatile.
Willthrill-
Months back when you posted your approach with this strategy, it drew my interest hence I tested it out for myself. A week later I abandoned HF's approach and implemented yours with a couple of differences.

1)I swapped out UPRO for TQQQ
2) modified the target volatility to 35% target volatility using a one month look back.

I'm a bit more aggressive due to having a government pension in addition to a 401k and 457b. If not for that (and my belief in the NASDAQ 100) I would have exactly followed your approach. I appreciate your sharing
I'm glad that I was able to be of some help.

I too have modified the approach slightly to include a few additional tickers, but I still use a 1 month lookback. I might increase the target volatility as well.
Hi Willthrill - perhaps you have shared your approach in the past and if so I apologize (I have read so much of the HFA threads and might not have caught it) but would you mind sharing it or if you have shared it previously maybe provide me some direction?

Thank you.
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

glenmalan wrote: Thu Aug 06, 2020 6:06 pm
willthrill81 wrote: Thu Aug 06, 2020 4:31 pm
7th_Diagram wrote: Thu Aug 06, 2020 2:14 pm
willthrill81 wrote: Thu Aug 06, 2020 11:10 am
mrspock wrote: Thu Aug 06, 2020 4:41 am Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.
I've had very good success with my implementation of this strategy (25% target volatility using 1 month lookback period) and have beaten the pants off an un-leveraged position, but it's nothing if not highly volatile.
Willthrill-
Months back when you posted your approach with this strategy, it drew my interest hence I tested it out for myself. A week later I abandoned HF's approach and implemented yours with a couple of differences.

1)I swapped out UPRO for TQQQ
2) modified the target volatility to 35% target volatility using a one month look back.

I'm a bit more aggressive due to having a government pension in addition to a 401k and 457b. If not for that (and my belief in the NASDAQ 100) I would have exactly followed your approach. I appreciate your sharing
I'm glad that I was able to be of some help.

I too have modified the approach slightly to include a few additional tickers, but I still use a 1 month lookback. I might increase the target volatility as well.
Hi Willthrill - perhaps you have shared your approach in the past and if so I apologize (I have read so much of the HFA threads and might not have caught it) but would you mind sharing it or if you have shared it previously maybe provide me some direction?

Thank you.
I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Do you use Downside volatility?
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

glenmalan wrote: Thu Aug 06, 2020 6:38 pm
willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Do you use Downside volatility?
Both upside and downside.

It seems counter-intuitive at first, but most upside volatility occurs when downside volatility is also high (i.e. volatility clustering).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Timing makes lots of difference for this strategy, whether it's the balancing timing, or for target volatility, when to execute (month end pricing or the next closing price). Just goes to show how sensitive the strategy is. Not complaining though since it's being beating the traditional buy and hold unleveraged funds.
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Crushtheturtle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Crushtheturtle »

I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
If I understand the implementation correctly, one might also just perform an internet search for "UPRO Volatility" and thereby find its 30 day volatility.

UPRO target % = Target Volatility/ 30 day Volatility
If you're not having fun, you'll just have to pretend.
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

jarjarM wrote: Thu Aug 06, 2020 7:33 pm Timing makes lots of difference for this strategy, whether it's the balancing timing, or for target volatility, when to execute (month end pricing or the next closing price). Just goes to show how sensitive the strategy is. Not complaining though since it's being beating the traditional buy and hold unleveraged funds.
All in on this strategy and if things continue to go right I can cut my time to retirement in less than half. Up over 30% on the year on my first 401k account I tried this in. In about one quarter and a week or so. I did add 25% TQQQ to 30% UPRO however about halfway in, which has paid big.
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

Semantics wrote: Thu Aug 06, 2020 3:13 pm
Alaric wrote: Thu Aug 06, 2020 2:29 pma brief 37-month period from December, 2015 through December, 2018. Why that seemingly cherry-picked and short range? Because the Fed raised rates nine times in those 3+ years, 25 bp at a time, from near zero. Below is how 100% TMF, 100% UPRO, and 55/45 UPRO/TMF with quarterly rebalancing (calendar-aligned) fared:
Even though the Fed raised short-term rates during that period, the 30-year rate did not increase, so that's why TMF had a positive return. Given that expected inflation ought to be higher now than in 2018, shouldn't we expect the 30-year yield to rise and price that in? That presumably depends on how strongly the Fed chooses to do yield curve control. But if inflation rises to say 3%, would the Fed really try to keep the 30-year yield at 1.2%?
#1 “Expected inflation” is already priced into all securities (not just bonds). It is UNexpected inflation/deflation that moves the markets.

#2 why would you expect future inflation to be higher than in 2018? Just bc is the fed printing money? One could argue that they are simply trying to replace some of the lost consumer spending we’ve seen since the pandemic started. Maybe the fed has just kept us from falling into deflation, like what was seen in the Great Depression?

My point, don’t try to guess where inflation is going. “Expected” inflation is already priced into everything so don’t bother worrying about it. It is unexpected shocks to the system, both to the positive and the negative, that move markets.
LakerP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LakerP »

As someone with no access to a retirement account, how can I make this strategy work in a taxable account with 100k starting balance?
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queso
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by queso »

LakerP wrote: Thu Aug 06, 2020 10:39 pm As someone with no access to a retirement account, how can I make this strategy work in a taxable account with 100k starting balance?
A lot of us are using M1 for this.
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

willthrill81 wrote: Thu Aug 06, 2020 6:38 pm
glenmalan wrote: Thu Aug 06, 2020 6:38 pm
willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Do you use Downside volatility?
Both upside and downside.

It seems counter-intuitive at first, but most upside volatility occurs when downside volatility is also high (i.e. volatility clustering).
Are you setting the 55/45 UPRO/TMF allocation as the starting ratio on PV?
tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Thanks for the info. This seems like a good middle ground between RayKeynes' leveraged SMA200 strategy and HF's leveraged buy-and-hold strategy.

Is this PV correct?
Last edited by tomphilly on Fri Aug 07, 2020 9:39 am, edited 1 time in total.
guyinlaw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw »

guyinlaw wrote: Tue Aug 04, 2020 3:33 pm If anyone is investing >$10k and >5% of your portfolio consider PSLDX in your IRA account. It is approximately ~2X leveraged stocks/bonds.

We are heading to the end of 40year bond bull market. As TMF is hitting it's roof, this strategy is getting riskier.
It will happen more often like today.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

glenmalan wrote: Fri Aug 07, 2020 7:06 am
willthrill81 wrote: Thu Aug 06, 2020 6:38 pm
glenmalan wrote: Thu Aug 06, 2020 6:38 pm
willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Do you use Downside volatility?
Both upside and downside.

It seems counter-intuitive at first, but most upside volatility occurs when downside volatility is also high (i.e. volatility clustering).
Are you setting the 55/45 UPRO/TMF allocation as the starting ratio on PV?
tomphilly wrote: Fri Aug 07, 2020 9:29 am
willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Thanks for the info. This seems like a good middle ground between RayKeynes' leveraged SMA200 strategy and HF's leveraged buy-and-hold strategy.

Is this PV correct?
No. I forgot to mention that I also put an 80% cap on UPRO so that I always have at least 20% in TMF.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

willthrill81 wrote: Fri Aug 07, 2020 10:27 am
glenmalan wrote: Fri Aug 07, 2020 7:06 am
willthrill81 wrote: Thu Aug 06, 2020 6:38 pm
glenmalan wrote: Thu Aug 06, 2020 6:38 pm
willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Do you use Downside volatility?
Both upside and downside.

It seems counter-intuitive at first, but most upside volatility occurs when downside volatility is also high (i.e. volatility clustering).
Are you setting the 55/45 UPRO/TMF allocation as the starting ratio on PV?
tomphilly wrote: Fri Aug 07, 2020 9:29 am
willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Thanks for the info. This seems like a good middle ground between RayKeynes' leveraged SMA200 strategy and HF's leveraged buy-and-hold strategy.

Is this PV correct?
No. I forgot to mention that I also put an 80% cap on UPRO so that I always have at least 20% in TMF.
So your default allocation before volatility adjustments is UPRO/TMF 80/20?
Last edited by tomphilly on Fri Aug 07, 2020 11:06 am, edited 7 times in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

tomphilly wrote: Fri Aug 07, 2020 10:55 am
willthrill81 wrote: Fri Aug 07, 2020 10:27 am
glenmalan wrote: Fri Aug 07, 2020 7:06 am
willthrill81 wrote: Thu Aug 06, 2020 6:38 pm
glenmalan wrote: Thu Aug 06, 2020 6:38 pm

Do you use Downside volatility?
Both upside and downside.

It seems counter-intuitive at first, but most upside volatility occurs when downside volatility is also high (i.e. volatility clustering).
Are you setting the 55/45 UPRO/TMF allocation as the starting ratio on PV?
tomphilly wrote: Fri Aug 07, 2020 9:29 am
willthrill81 wrote: Thu Aug 06, 2020 6:28 pm I'm using a target volatility approach with UPRO and TMF. The target volatility is 25%, and the look back period is 1 month. Very simple. Portfolio Visualizer will calculate it, but you have to subscribe to get the current month's allocation.
Thanks for the info. This seems like a good middle ground between RayKeynes' leveraged SMA200 strategy and HF's leveraged buy-and-hold strategy.

Is this PV correct?
No. I forgot to mention that I also put an 80% cap on UPRO so that I always have at least 20% in TMF.
So your default allocation before volatility adjustments is UPRO/TMF 80/20?
Correct.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by djeayzonne »

So, I set up market volatility as willthrill has been describing.
I also created the standard 55/45 HFEA as a benchmark.

Target Volatility vs Standard HFEA

Based on this, what's the point?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

djeayzonne wrote: Sat Aug 08, 2020 2:00 am So, I set up market volatility as willthrill has been describing.
I also created the standard 55/45 HFEA as a benchmark.

Target Volatility vs Standard HFEA

Based on this, what's the point?
I don't see a comparison to HFEA in that PV. It clearly won over HFEA in my comparisons, though I used a 66/34 ratio, downside volatility only and trade execution at next close. It even narrowly outperformed HFEA with the out of market asset as cash, which makes the strategy suitable for alternative volatility hedges, which is what I was interested in. The main drawback I see is when the allocation flips during high volatility periods, it will be harder to avoid tax events.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Future EXpat »

New forum member here. Not sure if this post is relevant to this thread, if not my apologies. I came across this website a few months ago https://wantelbos.github.io/ which is a leveraged volatility targeted balanced allocation strategy. I have invested 25% of my portfolio to this strategy. Any comments or opinions regarding this strategy would be appreciated.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LadyGeek »

Welcome! That's a GitHub repository. Here's the source code: GitHub - wantelbos/wantelbos.github.io

This is a very new project. It's 6 months old with no one but the developer adding commits, no pull requests. To me, this is a red flag.

As noted several times in this thread, you should not be investing more than 5% of your portfolio in anything that strays from a diversified total market approach. It's the most you can afford to lose without messing up your retirement plans. This is your life's savings here. Don't take more risk than what you can afford to lose.

May I suggest you start a new thread in the Personal Investments forum and post your portfolio information using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask in that thread.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Busdrvr »

HEDGEFUNDIE wrote: Sun Aug 11, 2019 9:41 pm [This thread is a continuation of HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs] --admin LadyGeek]

(continued from last post of Part 1)

Therefore, at these rates today, and with the three comparable historical periods I backtested above, I am hereby making the following change to the OG strategy:

55% UPRO / 45% TMF

_______________________________________________________________

Latest tracker (Updated Mar 18, 2020)

Image
Until now I hadn’t seen this startling update from page one, but this screenshot says that on that date (Near the market bottom)all of the prior gains were erased. I know he is no longer here to tell us, but it appears that today this PF would be in the neighborhood of 225k from the initial 100k starting in 2/19. Does that seem right?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Waba »

LadyGeek wrote: Sat Aug 08, 2020 10:22 am This is a very new project. It's 6 months old with no one but the developer adding commits, no pull requests. To me, this is a red flag.
That's my website :-D This is of course still no reason to trust it. It's free and you get what you pay for.

The website explains itself I hope. It is updated every day after market close with the data for that day.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SVT »

Busdrvr wrote: Sat Aug 08, 2020 7:23 pm
HEDGEFUNDIE wrote: Sun Aug 11, 2019 9:41 pm [This thread is a continuation of HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs] --admin LadyGeek]

(continued from last post of Part 1)

Therefore, at these rates today, and with the three comparable historical periods I backtested above, I am hereby making the following change to the OG strategy:

55% UPRO / 45% TMF

_______________________________________________________________

Latest tracker (Updated Mar 18, 2020)

Image
Until now I hadn’t seen this startling update from page one, but this screenshot says that on that date (Near the market bottom)all of the prior gains were erased. I know he is no longer here to tell us, but it appears that today this PF would be in the neighborhood of 225k from the initial 100k starting in 2/19. Does that seem right?
Yes, that is a good estimate. At the time of his latest update, I was also nearly back to my original investment (I think the balance went down to around $84k and I started with about $82k). My Roth is currently just under $200k, so yeah HEDGEFUNDIE being at around $225k currently is a probably good estimate.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by djeayzonne »

tomphilly wrote: Sat Aug 08, 2020 4:51 am
I don't see a comparison to HFEA in that PV. It clearly won over HFEA in my comparisons, though I used a 66/34 ratio, downside volatility only and trade execution at next close. It even narrowly outperformed HFEA with the out of market asset as cash, which makes the strategy suitable for alternative volatility hedges, which is what I was interested in. The main drawback I see is when the allocation flips during high volatility periods, it will be harder to avoid tax events.
Maybe because it is a custom benchmark I created? Or because you have to have a proper account?
I am not sure how that works, so I will just paste a screenshot.

Image
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by coingaroo »

SVT wrote: Sat Aug 08, 2020 8:24 pm Yes, that is a good estimate. At the time of his latest update, I was also nearly back to my original investment (I think the balance went down to around $84k and I started with about $82k). My Roth is currently just under $200k, so yeah HEDGEFUNDIE being at around $225k currently is a probably good estimate.
As long as he didn't panic sell :)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by coingaroo »

Future EXpat wrote: Sat Aug 08, 2020 9:45 am New forum member here. Not sure if this post is relevant to this thread, if not my apologies. I came across this website a few months ago https://wantelbos.github.io/ which is a leveraged volatility targeted balanced allocation strategy. I have invested 25% of my portfolio to this strategy. Any comments or opinions regarding this strategy would be appreciated.
I would like to know why you decided to choose and invest in a "random" strategy? There is extraordinarily little justification or research behind it, and it seems to have under-performed a simple 55/45 HFEA.

Holding intermediate duration bonds alongside 3x leveraged stocks and bonds also strikes me as quite dubious, as you'd probably get strictly better returns from using this "free space" to reduce your holdings of 3x lev ETFs and reducing ER (look ma, free returns!)

For anyone reading along, I would highly caution against following such "strategy".
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

djeayzonne wrote: Sat Aug 08, 2020 8:29 pm Maybe because it is a custom benchmark I created? Or because you have to have a proper account?
I am not sure how that works, so I will just paste a screenshot.

Image
I have an account, but maybe I can't access your saved models.

I also can't get the numbers you're getting with HFEA 55/45. Are you adding a cashflow? Re-balancing monthly I get:

Image

PV

With the TV model at the same 55/45 ratio, I get:

Image

PV

This TV ratio isn't nearly as aggressive as will's 80/20 but still outperformed HFEA at reduced risk for me. I would love to see the TV model simulated over a longer period.

Is there an older 2x leveraged LTT ETF that can be paired with ULPIX?
Last edited by tomphilly on Sun Aug 09, 2020 12:51 pm, edited 2 times in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Busdrvr »

HEDGEFUNDIE wrote: Thu Apr 16, 2020 12:57 pm
KSActuary wrote: Thu Apr 16, 2020 12:15 pm Might as well as that draw down isn't going away.
I am of a mind to keep that drawdown prominently posted forever so no one gets the wrong idea that I am cheerleading this strategy for unsuited newcomers.
Foreshadowing?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RocketShipTech »

tomphilly wrote: Sun Aug 09, 2020 12:27 pm
With the TV model at the same 55/45 ratio, I get:

Image

PV

This TV ratio isn't nearly as aggressive as will's 80/20 but still outperformed HFEA at reduced risk for me
HFEA is rebalanced quarterly, not monthly.

https://www.portfoliovisualizer.com/bac ... tion2_1=45

HFEA outperforms both TV strategies.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

RocketShipTech wrote: Sun Aug 09, 2020 1:07 pm HFEA is rebalanced quarterly, not monthly.
I missed that little gold nugget, thanks. That makes a big difference.

For what it's worth, a 65/35 TV model outperforms a 65/35 HFEA, and its CAGR outperforms classic 55/45 HFEA (but the drawdown and sharpe are worse - though not unpalatable). I realize I'm just playing with toggles here, but to be fair, so did HF when deciding the re-balancing schedule.

Assuming PV quarterly re-balancing occurs Jan 1, Apr 1, Jul 1, Oct 1, it would be interesting to see for example a Feb 15, May 15, Aug 15 and Nov 15 re-balancing result. I'm not financially savvy enough to fully articulate this but it seems like the TV model re-balancing based on a signal leaves less to chance and would lead to more consistent results across multiple investors deploying the same strategy. My apologies if this aspect of the re-balancing schedule has already been covered.
Last edited by tomphilly on Sun Aug 09, 2020 2:34 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

tomphilly wrote: Sun Aug 09, 2020 2:05 pm
RocketShipTech wrote: Sun Aug 09, 2020 1:07 pm HFEA is rebalanced quarterly, not monthly.
I missed that little gold nugget, thanks. That makes a big difference.

For what it's worth, a 65/35 TV model outperforms a 65/35 HFEA, and its CAGR outperforms classic 55/45 HFEA (but the drawdown and sharpe are worse - though not unpalatable). I realize I'm just playing with toggles here, but to be fair, so did HF when deciding the re-balancing schedule.

Assuming PV quarterly re-balancing occurs Jan 1, Apr 1, Jul 1, Oct 1, it would be interesting to see for example a Feb 15, May 15, Aug 15 and Nov 15 re-balancing result. I'm not financially savvy enough to fully articulate this but it seems like the TV model re-balancing based on a signal leaves less to chance and would lead to more consistent results across multiple investors deploying the same strategy. My apologies if this aspect of the re-balancing schedule has already been covered.
The backtesting I’ve done suggests that rebalancing near the Jan 1 quarters has performed noticeably better than quarterly strategies away from these dates. Maybe something to do with end of quarter actions.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

Hydromod wrote: Sun Aug 09, 2020 2:32 pm
tomphilly wrote: Sun Aug 09, 2020 2:05 pm
RocketShipTech wrote: Sun Aug 09, 2020 1:07 pm HFEA is rebalanced quarterly, not monthly.
I missed that little gold nugget, thanks. That makes a big difference.

For what it's worth, a 65/35 TV model outperforms a 65/35 HFEA, and its CAGR outperforms classic 55/45 HFEA (but the drawdown and sharpe are worse - though not unpalatable). I realize I'm just playing with toggles here, but to be fair, so did HF when deciding the re-balancing schedule.

Assuming PV quarterly re-balancing occurs Jan 1, Apr 1, Jul 1, Oct 1, it would be interesting to see for example a Feb 15, May 15, Aug 15 and Nov 15 re-balancing result. I'm not financially savvy enough to fully articulate this but it seems like the TV model re-balancing based on a signal leaves less to chance and would lead to more consistent results across multiple investors deploying the same strategy. My apologies if this aspect of the re-balancing schedule has already been covered.
The backtesting I’ve done suggests that rebalancing near the Jan 1 quarters has performed noticeably better than quarterly strategies away from these dates. Maybe something to do with end of quarter actions.
Much much more likely that it's because of backtesting overfit. If end of quarter actions could have such a large (and reliable) effect, the markets would be ridiculously inefficient and we should all be doing market timing like clock-work.

The fact that different dates of rebalancing can have such a big impact on the strategy (as noticed also by many participants of this strategy who've traded it live over the past year) shows that backtesting a single "representative" of the strategy from the class of all equivalent such strategies is extremely inadequate. Basically, the variance in outcomes is massive and more independent Monte Carlo simulations are needed to get any semblance of statistical significance. Comparing single backtest results between arbitrary instantiations of different strategies is meaningless because there is probably just as much variation between instantiations of the same strategy as there is between strategies.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

langlands wrote: Sun Aug 09, 2020 2:57 pm The fact that different dates of rebalancing can have such a big impact on the strategy (as noticed also by many participants of this strategy who've traded it live over the past year) shows that backtesting a single "representative" of the strategy from the class of all equivalent such strategies is extremely inadequate. Basically, the variance in outcomes is massive and more independent Monte Carlo simulations are needed to get any semblance of statistical significance. Comparing single backtest results between arbitrary instantiations of different strategies is meaningless because there is probably just as much variation between instantiations of the same strategy as there is between strategies.
Would you say this lends some credence to the TV model then, since it's not based on arbitrary re-balancing dates that can significantly affect the outcome? There are two parts to these strategies - the ratio, which is based on accepted logic around the -1 correlation, and re-balancing timing, which for HFEA has no justification, but for TV is based on a volatility signal.

EDIT: I should add - if I am understand this correctly - there is only one possible instantiation of the TV model at each ratio, versus 30 possible instantiations of HFEA.
Last edited by tomphilly on Sun Aug 09, 2020 3:41 pm, edited 2 times in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

tomphilly wrote: Sun Aug 09, 2020 3:22 pm
langlands wrote: Sun Aug 09, 2020 2:57 pm The fact that different dates of rebalancing can have such a big impact on the strategy (as noticed also by many participants of this strategy who've traded it live over the past year) shows that backtesting a single "representative" of the strategy from the class of all equivalent such strategies is extremely inadequate. Basically, the variance in outcomes is massive and more independent Monte Carlo simulations are needed to get any semblance of statistical significance. Comparing single backtest results between arbitrary instantiations of different strategies is meaningless because there is probably just as much variation between instantiations of the same strategy as there is between strategies.
Would you say this lends some credence to the TV model then, since it's not based on arbitrary re-balancing dates that can significantly affect the outcome? There are two parts to these strategies - the ratio, which is based on accepted logic around the -1 correlation, and re-balancing timing, which for HFEA is not supported by logic, but for TV is based on a volatility signal.
To clarify, TV is target volatility and HFEA is the 55/45 strategy rebalanced quarterly starting with Jan1? (What does HFEA stand for btw?).

UPRO and TMF have negative correlation, but it isn't -1.

There is some logic to the TV model, yes. With every model, you should analyze what is canonical and what is arbitrary about it, and reduce the latter. The notion of allocating according to some volatility metric makes sense. Now what you need to worry about is what volatility to target and make sure you come up with some principled way of determining that parameter. Running a bunch of backtests and choosing the one that did the best in those simulations is decidedly not a principled method.

To be clear, I don't believe TV is superior to HFEA. It's just that rebalancing quarterly is arbitrary. An implementation that makes much more sense would be rebalancing bands that all Bogleheads use in general for their portfolios. Here, the parameter would be how wide the band should be. Again, the choice should not be based simply on backtests.

TV makes the most sense to me from a "strong EMH" point of view. It's the most principled application of the Kelly criterion if you're trying to maximize CAGR and believe that stock prices are literally following geometric Brownian motion. It's main defect is that it wants to maintain a very low UPRO allocation when volatility is very high, which is exactly when the market is at it's bottom. There seems to be quite a bit of evidence that when markets crash, subsequent returns are abnormally high, which means you'd probably want a reasonably large allocation to UPRO. HFEA (or at least a rebalancing band version) would maintain such an allocation.
Last edited by langlands on Sun Aug 09, 2020 3:49 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

langlands wrote: Sun Aug 09, 2020 3:39 pm (What does HFEA stand for btw?).
"HEDGEFUNDIE's excellent adventure". And thank you -- I will spend some time digesting your response.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

tomphilly wrote: Sun Aug 09, 2020 3:22 pm EDIT: I should add - if I am understand this correctly - there is only one possible instantiation of the TV model at each ratio, versus 30 possible instantiations of HFEA.
Yes, that's right. I mean, there's a lot of possible ratios in the TV model as well so it's not like it has fewer parameters.
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