I am testing this out. I just created a small "Hedge Fund" account. I am not doing this with Schwab in a taxable account. I instead selling/buying to to re-balance, I anticipate that I will add to my position.AZAttorney11 wrote: ↑Tue Aug 13, 2019 1:07 pm Can we get a "show of hands" of those posters who are participating in this excellent adventure? I'm out (for now), but this is the most intriguing thread I've ever read on this forum (market timer's classic is a close second).
HEDGEFUNDIE's excellent adventure Part II: The next journey
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
The analysis in your prior post makes me consider joining you. Seems they may have similar expected returns with vastly different risk profiles.MoneyMarathon wrote: ↑Tue Aug 13, 2019 1:49 pmI'm also not participating, but I bought PSLDX.AZAttorney11 wrote: ↑Tue Aug 13, 2019 1:07 pm Can we get a "show of hands" of those posters who are participating in this excellent adventure? I'm out (for now)
https://www.pimco.com/en-us/investments ... -fund/inst
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
privatefarmer wrote: ↑Tue Aug 13, 2019 1:22 amI can withstand up to a 6% 1-day drop of my portfolio as of now before hitting a margin call. So I think there’s a lot of misunderstanding of how margin calls work. #1 it’s extremely unlikely my portfolio would drop 6% in a single day.
Too much fixation on just managing bad 1-day drops. The market can gently grind your portfolio into dust over a 30-90 day period, as you dodge margin calls. You may still have sub-5% of your balance, which is more than 0% but not that much more.privatefarmer wrote: ↑Tue Aug 13, 2019 1:22 am Yes, a ~20% 1-day drop would basically kill my portfolio
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I setup the Simba spreadsheet to quickly output the rebalancing bonus for a few allocations and I have to say I am pretty unsatisfied with the findings.MoneyMarathon wrote: ↑Tue Aug 13, 2019 1:47 pm
The apparently counter-intuitive thing here is that TMF has generated great returns... during 1987-2018. That's the most important part of what makes the backtest with a full TMF allocation so amazing. The "stock market tanks" anti-correlation-based rebalancing effects are also a factor, but a secondary one: if TMF was a drag or did little for the portfolio otherwise, but just had great anti-correlation, things would have been very different for a backtest on this range of dates.
Using Simba's spreadsheet:
40% UPRO rebalanced annually with plain cash (zero correlation, no interest) provided 7.77% CAGR and 10.97x return.
60% TMF rebalanced annually with plain cash (zero correlation, no interest) provided 8.07% CAGR and 11.96x return.
40% UPRO / 60% TMF rebalanced annually with each other provided 16.89% CAGR and 147.45x return.
Backing out the different factors, if there were no anti-correlation effect during annual rebalancing (just zero correlation), we might have expected to get a return of 10.97 x 11.96 = 131.2x. A return of 131.2x over 32 years is a CAGR of 16.46%. We actually got a CAGR of 16.89% which allowed us to get an extra 12.4% accumulated over a 32 year time period.
The added value of 60% TMF over the 32 years here was divided between 11.96x return, by itself with zero correlation to no-yield cash, and an extra 1.12x return thanks to the incremental benefit of being anti-correlated with UPRO. Understandably, then, I believe it should be plain that if TMF doesn't deliver strong positive yield all on its own, then you're not going to get it anything close to working like it did 1980s to present.
55/45 UPRO/TMF
1955-2018 - 0.11%
1955-1982 - 0.22%
1982-2018 - 0.53%
40/60 UPRO/TMF
1955-2018 - 0.12%
1955-1982 - (-0.01%)
1982-2018 - 0.69%
This really takes a hit on my feelings towards the strategy.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I did. I caught the up yesterday in TMF before selling also. Up 5500 total since 3/11. Its been a fun adventure.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 8:59 am Anyone who changed their allocation yesterday with me was rewarded for it today. UPRO up 5% with TMF flat.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
<hand raised>
About 5%, started 40/60 about a month ago, changed allocation & clicked the button today, so tomorrow will be 55/45.
Up 13.8%...trying to decide what color Lambo I will buy.
TNWoods
About 5%, started 40/60 about a month ago, changed allocation & clicked the button today, so tomorrow will be 55/45.
Up 13.8%...trying to decide what color Lambo I will buy.
TNWoods
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I have a PortfolioVisualizer question for you PV experts:
I'm considering using a 2-month SMA (monthly rebalancing) strategy like this*: https://www.portfoliovisualizer.com/tes ... total1=100
When I try to convert the 2-month timing period into days, such as 42, or 60, etc. I get a very different CAGR. Does anyone know what the appropriate conversion is?
The reason I ask is because I'd like to just set up a chart over at Fidelity that would tell me what I need to know and skip PV (which would also be easier for my wife just in case something happens to me, etc.) But Fidelity only has a SMA chart in days, not months, and thus the problem.
To make matters worse, I just noticed it that Fidelity and PV have different takes on what the 60-day (for example) SMA is as of yesterday, the 12th. Fidelity thinks it was $53.22:
And PV thinks it was $53.18:
Thoughts?
______
* I'd be capping it at 80/20 or 20/80, just in case you thought I went nuts.
I'm considering using a 2-month SMA (monthly rebalancing) strategy like this*: https://www.portfoliovisualizer.com/tes ... total1=100
When I try to convert the 2-month timing period into days, such as 42, or 60, etc. I get a very different CAGR. Does anyone know what the appropriate conversion is?
The reason I ask is because I'd like to just set up a chart over at Fidelity that would tell me what I need to know and skip PV (which would also be easier for my wife just in case something happens to me, etc.) But Fidelity only has a SMA chart in days, not months, and thus the problem.
To make matters worse, I just noticed it that Fidelity and PV have different takes on what the 60-day (for example) SMA is as of yesterday, the 12th. Fidelity thinks it was $53.22:
And PV thinks it was $53.18:
Thoughts?
______
* I'd be capping it at 80/20 or 20/80, just in case you thought I went nuts.
- firebirdparts
- Posts: 4412
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- Location: Southern Appalachia
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
yeah, that felt good.
This time is the same
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I've been in for a while with a small amount at 50-50. I might go 55-45 based on recent discussion.AZAttorney11 wrote: ↑Tue Aug 13, 2019 1:07 pm Can we get a "show of hands" of those posters who are participating in this excellent adventure? I'm out (for now), but this is the most intriguing thread I've ever read on this forum (market timer's classic is a close second).
- ThereAreNoGurus
- Posts: 970
- Joined: Fri Jan 24, 2014 10:41 pm
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Another hand raised.AZAttorney11 wrote: ↑Tue Aug 13, 2019 1:07 pm Can we get a "show of hands" of those posters who are participating in this excellent adventure? I'm out (for now), but this is the most intriguing thread I've ever read on this forum (market timer's classic is a close second).
Started with 100K which is less than 5% of my investment portfolio.
Trade the news and you will lose.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
I still hope you all get yachts but I am struggling to see the light anymore.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Started with $100K, about 5% of investable assets, up over 40% as of today. Doing 40/60 with quarterly rebalancing so far. Considering moving to or towards 55/45, or going with a monthly windowed volatility based strategy.AZAttorney11 wrote: ↑Tue Aug 13, 2019 1:07 pm Can we get a "show of hands" of those posters who are participating in this excellent adventure?
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Present. Rebalanced (today) to the new 55/45 v2 version of the strategy, I was doing 40/60 until this morning. +39% since early Feb. Using my Roth IRA for this.AZAttorney11 wrote: ↑Tue Aug 13, 2019 1:07 pm Can we get a "show of hands" of those posters who are participating in this excellent adventure? I'm out (for now), but this is the most intriguing thread I've ever read on this forum (market timer's classic is a close second).
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Using your first example, are you saying that the difference between making an initial investment of 55/45 and not rebalancing it in anyway compared to rebalancing it on a periodic basis (like monthly) nets you around 0.5 CAGR in a best case scenario?MotoTrojan wrote: ↑Tue Aug 13, 2019 3:35 pmI setup the Simba spreadsheet to quickly output the rebalancing bonus for a few allocations and I have to say I am pretty unsatisfied with the findings.MoneyMarathon wrote: ↑Tue Aug 13, 2019 1:47 pm
The apparently counter-intuitive thing here is that TMF has generated great returns... during 1987-2018. That's the most important part of what makes the backtest with a full TMF allocation so amazing. The "stock market tanks" anti-correlation-based rebalancing effects are also a factor, but a secondary one: if TMF was a drag or did little for the portfolio otherwise, but just had great anti-correlation, things would have been very different for a backtest on this range of dates.
Using Simba's spreadsheet:
40% UPRO rebalanced annually with plain cash (zero correlation, no interest) provided 7.77% CAGR and 10.97x return.
60% TMF rebalanced annually with plain cash (zero correlation, no interest) provided 8.07% CAGR and 11.96x return.
40% UPRO / 60% TMF rebalanced annually with each other provided 16.89% CAGR and 147.45x return.
Backing out the different factors, if there were no anti-correlation effect during annual rebalancing (just zero correlation), we might have expected to get a return of 10.97 x 11.96 = 131.2x. A return of 131.2x over 32 years is a CAGR of 16.46%. We actually got a CAGR of 16.89% which allowed us to get an extra 12.4% accumulated over a 32 year time period.
The added value of 60% TMF over the 32 years here was divided between 11.96x return, by itself with zero correlation to no-yield cash, and an extra 1.12x return thanks to the incremental benefit of being anti-correlated with UPRO. Understandably, then, I believe it should be plain that if TMF doesn't deliver strong positive yield all on its own, then you're not going to get it anything close to working like it did 1980s to present.
55/45 UPRO/TMF
1955-2018 - 0.11%
1955-1982 - 0.22%
1982-2018 - 0.53%
40/60 UPRO/TMF
1955-2018 - 0.12%
1955-1982 - (-0.01%)
1982-2018 - 0.69%
This really takes a hit on my feelings towards the strategy.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I think he's saying that doing the 55/45 UPRO/TMF investment with annual rebalancing can be compared to making two investments, 55/45 UPRO/CASH and 55/45 CASH/TMF, both with annual rebalancing.
The first case would have yielded a CAGR that was 0.5 larger than the second case. That's the benefit from negative correlation.
Correct me if I'm wrong.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Precisely, and the CASH isn't generating a return in that analysis. If TMF is flat and this 0.5% rebalancing bonus persists (it was often less) then you'd actually have been better off holding 55% UPRO and 45% in money market, as the 45% money market yield would likely exceed 0.5%.Hydromod wrote: ↑Tue Aug 13, 2019 5:46 pmI think he's saying that doing the 55/45 UPRO/TMF investment with annual rebalancing can be compared to making two investments, 55/45 UPRO/CASH and 55/45 CASH/TMF, both with annual rebalancing.
The first case would have yielded a CAGR that was 0.5 larger than the second case. That's the benefit from negative correlation.
Correct me if I'm wrong.
The OPs premise stated that UPRO generates the returns and TMF just balances it out in downturns, but this proves that is not the case and TMF actually had a HUGE part in the returns since 1982. Given current yields there are limits to TMF's potential future returns, and thus the strategy as a whole. I always knew this to be the case, but did not realize how small the rebalancing bonus really was.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Can someone explain to me the concept of drawdown in relation to this strategy. Thanks
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Drawdown is simply the max peak to trough decline, there is nothing specific to this strategy. Most drawdowns reported are monthly (coming from Portfolio Visualizer) although the Simba spreadsheet is also referenced and is annual, so the result will look smaller.beezquimby wrote: ↑Tue Aug 13, 2019 6:17 pm Can someone explain to me the concept of drawdown in relation to this strategy. Thanks
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I'm participating as of July 22 with 3.7% of my net worth. Part of it is in taxable and part in Roth. I'm using the Roth to balance the entire thing as if it were one account. I made an Excel sheet to calculate what I need to buy/sell to rebalance. Hopefully the accounts will not become too skewed overtime to the point I am unable to rebalance.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
So is the point to buy these two funds and hold them long term, making additional purchases to balance out the 40/60 ratio? I will admit that I am intrigued.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Okay, I think I understand the intended approach a little better now. However, the results I obtained using PV are significantly different for the 1987-2019 simulated data set. Running 55(upro)/cash and 45(tmf)/cash as separate portfolios and then combining the results, I got a combined CAGR of 12.17%. For the 55(upro)/45(tmf) portfolio, I got a CAGR of 16.86. That 4.5+% additional points per year adds up to some significant money over a 33 year period.MotoTrojan wrote: ↑Tue Aug 13, 2019 5:53 pmPrecisely, and the CASH isn't generating a return in that analysis. If TMF is flat and this 0.5% rebalancing bonus persists (it was often less) then you'd actually have been better off holding 55% UPRO and 45% in money market, as the 45% money market yield would likely exceed 0.5%.Hydromod wrote: ↑Tue Aug 13, 2019 5:46 pmI think he's saying that doing the 55/45 UPRO/TMF investment with annual rebalancing can be compared to making two investments, 55/45 UPRO/CASH and 55/45 CASH/TMF, both with annual rebalancing.
The first case would have yielded a CAGR that was 0.5 larger than the second case. That's the benefit from negative correlation.
Correct me if I'm wrong.
The OPs premise stated that UPRO generates the returns and TMF just balances it out in downturns, but this proves that is not the case and TMF actually had a HUGE part in the returns since 1982. Given current yields there are limits to TMF's potential future returns, and thus the strategy as a whole. I always knew this to be the case, but did not realize how small the rebalancing bonus really was.
I must be missing something?
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
55upro/45tmf rebalancing period pv cagrs. (thanks to folks for the sim data, instructions, and links)
pv rebalancing period // 1987-date sim data // jan 2010-date
none------------------------------------- 10.74----------------------------------25.94
annual----------------------------------- 16.86----------------------------------27.8
quarterly -------------------------------- 17.62--------------------------------- 31.58
monthly -------------------------------- 15.6 ---------------------------------- 29.9
pv rebalancing period // 1987-date sim data // jan 2010-date
none------------------------------------- 10.74----------------------------------25.94
annual----------------------------------- 16.86----------------------------------27.8
quarterly -------------------------------- 17.62--------------------------------- 31.58
monthly -------------------------------- 15.6 ---------------------------------- 29.9
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
How did you combine the results? I’ll have to run the numbers later but it shouldn’t be anywhere near that high. Also was this quarterly rebalance?ocrtech wrote: ↑Tue Aug 13, 2019 6:44 pmOkay, I think I understand the intended approach a little better now. However, the results I obtained using PV are significantly different for the 1987-2019 simulated data set. Running 55(upro)/cash and 45(tmf)/cash as separate portfolios and then combining the results, I got a combined CAGR of 12.17%. For the 55(upro)/45(tmf) portfolio, I got a CAGR of 16.86. That 4.5+% additional points per year adds up to some significant money over a 33 year period.MotoTrojan wrote: ↑Tue Aug 13, 2019 5:53 pmPrecisely, and the CASH isn't generating a return in that analysis. If TMF is flat and this 0.5% rebalancing bonus persists (it was often less) then you'd actually have been better off holding 55% UPRO and 45% in money market, as the 45% money market yield would likely exceed 0.5%.Hydromod wrote: ↑Tue Aug 13, 2019 5:46 pmI think he's saying that doing the 55/45 UPRO/TMF investment with annual rebalancing can be compared to making two investments, 55/45 UPRO/CASH and 55/45 CASH/TMF, both with annual rebalancing.
The first case would have yielded a CAGR that was 0.5 larger than the second case. That's the benefit from negative correlation.
Correct me if I'm wrong.
The OPs premise stated that UPRO generates the returns and TMF just balances it out in downturns, but this proves that is not the case and TMF actually had a HUGE part in the returns since 1982. Given current yields there are limits to TMF's potential future returns, and thus the strategy as a whole. I always knew this to be the case, but did not realize how small the rebalancing bonus really was.
I must be missing something?
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- Joined: Sun Oct 22, 2017 2:06 pm
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Here is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
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- Posts: 11259
- Joined: Wed Feb 01, 2017 7:39 pm
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Equity bull. What happens over the next 30 years though?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pmHere is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
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- Posts: 4801
- Joined: Sun Oct 22, 2017 2:06 pm
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
The natural state of the stock market is bull mode - how else would the 90 year CAGR on US stocks be 9-10%? Why else would we recommend young people tilt toward equities?MotoTrojan wrote: ↑Tue Aug 13, 2019 6:52 pmEquity bull. What happens over the next 30 years though?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pmHere is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Here is the link to what I setup in PV: https://www.portfoliovisualizer.com/bac ... total3=100MotoTrojan wrote: ↑Tue Aug 13, 2019 6:49 pmHow did you combine the results? I’ll have to run the numbers later but it shouldn’t be anywhere near that high. Also was this quarterly rebalance?ocrtech wrote: ↑Tue Aug 13, 2019 6:44 pmOkay, I think I understand the intended approach a little better now. However, the results I obtained using PV are significantly different for the 1987-2019 simulated data set. Running 55(upro)/cash and 45(tmf)/cash as separate portfolios and then combining the results, I got a combined CAGR of 12.17%. For the 55(upro)/45(tmf) portfolio, I got a CAGR of 16.86. That 4.5+% additional points per year adds up to some significant money over a 33 year period.MotoTrojan wrote: ↑Tue Aug 13, 2019 5:53 pmPrecisely, and the CASH isn't generating a return in that analysis. If TMF is flat and this 0.5% rebalancing bonus persists (it was often less) then you'd actually have been better off holding 55% UPRO and 45% in money market, as the 45% money market yield would likely exceed 0.5%.Hydromod wrote: ↑Tue Aug 13, 2019 5:46 pmI think he's saying that doing the 55/45 UPRO/TMF investment with annual rebalancing can be compared to making two investments, 55/45 UPRO/CASH and 55/45 CASH/TMF, both with annual rebalancing.
The first case would have yielded a CAGR that was 0.5 larger than the second case. That's the benefit from negative correlation.
Correct me if I'm wrong.
The OPs premise stated that UPRO generates the returns and TMF just balances it out in downturns, but this proves that is not the case and TMF actually had a HUGE part in the returns since 1982. Given current yields there are limits to TMF's potential future returns, and thus the strategy as a whole. I always knew this to be the case, but did not realize how small the rebalancing bonus really was.
I must be missing something?
For the first two portfolios which contain cash, I added the two final balances together, and then manually calculated the CAGR. For the third portfolio, I used the CAGR provided by PV.
For quarterly rebalancing, the difference is even greater. Around 5.5% CAGR.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
If I am doing the calculations correctly, I haveocrtech wrote: ↑Tue Aug 13, 2019 6:44 pmOkay, I think I understand the intended approach a little better now. However, the results I obtained using PV are significantly different for the 1987-2019 simulated data set. Running 55(upro)/cash and 45(tmf)/cash as separate portfolios and then combining the results, I got a combined CAGR of 12.17%. For the 55(upro)/45(tmf) portfolio, I got a CAGR of 16.86. That 4.5+% additional points per year adds up to some significant money over a 33 year period.MotoTrojan wrote: ↑Tue Aug 13, 2019 5:53 pmPrecisely, and the CASH isn't generating a return in that analysis. If TMF is flat and this 0.5% rebalancing bonus persists (it was often less) then you'd actually have been better off holding 55% UPRO and 45% in money market, as the 45% money market yield would likely exceed 0.5%.Hydromod wrote: ↑Tue Aug 13, 2019 5:46 pmI think he's saying that doing the 55/45 UPRO/TMF investment with annual rebalancing can be compared to making two investments, 55/45 UPRO/CASH and 55/45 CASH/TMF, both with annual rebalancing.
The first case would have yielded a CAGR that was 0.5 larger than the second case. That's the benefit from negative correlation.
Correct me if I'm wrong.
The OPs premise stated that UPRO generates the returns and TMF just balances it out in downturns, but this proves that is not the case and TMF actually had a HUGE part in the returns since 1982. Given current yields there are limits to TMF's potential future returns, and thus the strategy as a whole. I always knew this to be the case, but did not realize how small the rebalancing bonus really was.
I must be missing something?
40/60 UPRO/CASH at 10.03 CAGR
40/60 CASH/TMF at 7.23 CAGR
40/60 UPRO/TMF at 16.88 CAGR
Equivalent with cash, investing 40% with UPRO and 60% with TMF, is
(0.4*(1.1003)^32 + 0.6*(1.0723)^32)^(1/32) = 1.0863
So the negative correlation effect is 16.88 - 8.63 = 8.25%
For 55/45:
55/45 UPRO/CASH at 11.58 CAGR
55/45 CASH/TMF at 7.63 CAGR
55/45 UPRO/TMF at 16.86 CAGR
Equivalent with cash, investing 55% with UPRO and 45% with TMF, is
(0.55*(1.1158)^32 + 0.45*(1.0763)^32)^(1/32) = 1.1030
So the negative correlation effect is 16.86 - 10.3 = 6.56%
Am I doing this correctly?
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
No I think everyone is doing something wrong here.Hydromod wrote: ↑Tue Aug 13, 2019 7:08 pmIf I am doing the calculations correctly, I haveocrtech wrote: ↑Tue Aug 13, 2019 6:44 pmOkay, I think I understand the intended approach a little better now. However, the results I obtained using PV are significantly different for the 1987-2019 simulated data set. Running 55(upro)/cash and 45(tmf)/cash as separate portfolios and then combining the results, I got a combined CAGR of 12.17%. For the 55(upro)/45(tmf) portfolio, I got a CAGR of 16.86. That 4.5+% additional points per year adds up to some significant money over a 33 year period.MotoTrojan wrote: ↑Tue Aug 13, 2019 5:53 pmPrecisely, and the CASH isn't generating a return in that analysis. If TMF is flat and this 0.5% rebalancing bonus persists (it was often less) then you'd actually have been better off holding 55% UPRO and 45% in money market, as the 45% money market yield would likely exceed 0.5%.Hydromod wrote: ↑Tue Aug 13, 2019 5:46 pmI think he's saying that doing the 55/45 UPRO/TMF investment with annual rebalancing can be compared to making two investments, 55/45 UPRO/CASH and 55/45 CASH/TMF, both with annual rebalancing.
The first case would have yielded a CAGR that was 0.5 larger than the second case. That's the benefit from negative correlation.
Correct me if I'm wrong.
The OPs premise stated that UPRO generates the returns and TMF just balances it out in downturns, but this proves that is not the case and TMF actually had a HUGE part in the returns since 1982. Given current yields there are limits to TMF's potential future returns, and thus the strategy as a whole. I always knew this to be the case, but did not realize how small the rebalancing bonus really was.
I must be missing something?
40/60 UPRO/CASH at 10.03 CAGR
40/60 CASH/TMF at 7.23 CAGR
40/60 UPRO/TMF at 16.88 CAGR
Equivalent with cash, investing 40% with UPRO and 60% with TMF, is
(0.4*(1.1003)^32 + 0.6*(1.0723)^32)^(1/32) = 1.0863
So the negative correlation effect is 16.88 - 8.63 = 8.25%
For 55/45:
55/45 UPRO/CASH at 11.58 CAGR
55/45 CASH/TMF at 7.63 CAGR
55/45 UPRO/TMF at 16.86 CAGR
Equivalent with cash, investing 55% with UPRO and 45% with TMF, is
(0.55*(1.1158)^32 + 0.45*(1.0763)^32)^(1/32) = 1.1030
So the negative correlation effect is 16.86 - 10.3 = 6.56%
Am I doing this correctly?
First off, CASHX in Portfolio Visualizer gives the return of t-bills so that is skewing those results.
Next, the allocation of 55/45 is already baked into the individual calcs, so the actual appropriate calculation is to multiply the gains (final value/initial value) and then calculate the combined CAGR.
Using those values you'd be closer to a $3.2M final balance rather than $1.8M for the actual 55/45, that CASHX really boosts things.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
The returns since July 2012 have been well above 9-10% so how does that prove anything? Why are you ignoring math that says you can't achieve the past total return without TMF achieving what it did in the past, while agreeing that TMF won't be able to do that?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:54 pmThe natural state of the stock market is bull mode - how else would the 90 year CAGR on US stocks be 9-10%? Why else would we recommend young people tilt toward equities?MotoTrojan wrote: ↑Tue Aug 13, 2019 6:52 pmEquity bull. What happens over the next 30 years though?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pmHere is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I was under the impression the proper calculation was to multiply the growth-factor of each sub-portion and calculate CAGR from that.ocrtech wrote: ↑Tue Aug 13, 2019 7:03 pm
For the first two portfolios which contain cash, I added the two final balances together, and then manually calculated the CAGR. For the third portfolio, I used the CAGR provided by PV.
For quarterly rebalancing, the difference is even greater. Around 5.5% CAGR.
So: (final_balance_1 * final_balance_2) / (starting_balance_PV) would be your total portfolio value, then you calculate the CAGR of that. That is the value that was 0-0.5% CAGR less than the actual portfolios (rebalancing bonus).
These are not two portfolios held separately then added together, they are means of simulating each assets contribution to the portfolio as a whole. If one of them goes up 10x and the other 3x, then the total growth was 30x, not 13x.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Can you do this calculation for 2000-present? As I mentioned in a previous thread viewtopic.php?f=10&t=272007&p=4688976#p4688976, the negative correlation actually is confirmed for 2000-present, but not for the several decades before that.MotoTrojan wrote: ↑Tue Aug 13, 2019 3:35 pmI setup the Simba spreadsheet to quickly output the rebalancing bonus for a few allocations and I have to say I am pretty unsatisfied with the findings.MoneyMarathon wrote: ↑Tue Aug 13, 2019 1:47 pm
The apparently counter-intuitive thing here is that TMF has generated great returns... during 1987-2018. That's the most important part of what makes the backtest with a full TMF allocation so amazing. The "stock market tanks" anti-correlation-based rebalancing effects are also a factor, but a secondary one: if TMF was a drag or did little for the portfolio otherwise, but just had great anti-correlation, things would have been very different for a backtest on this range of dates.
Using Simba's spreadsheet:
40% UPRO rebalanced annually with plain cash (zero correlation, no interest) provided 7.77% CAGR and 10.97x return.
60% TMF rebalanced annually with plain cash (zero correlation, no interest) provided 8.07% CAGR and 11.96x return.
40% UPRO / 60% TMF rebalanced annually with each other provided 16.89% CAGR and 147.45x return.
Backing out the different factors, if there were no anti-correlation effect during annual rebalancing (just zero correlation), we might have expected to get a return of 10.97 x 11.96 = 131.2x. A return of 131.2x over 32 years is a CAGR of 16.46%. We actually got a CAGR of 16.89% which allowed us to get an extra 12.4% accumulated over a 32 year time period.
The added value of 60% TMF over the 32 years here was divided between 11.96x return, by itself with zero correlation to no-yield cash, and an extra 1.12x return thanks to the incremental benefit of being anti-correlated with UPRO. Understandably, then, I believe it should be plain that if TMF doesn't deliver strong positive yield all on its own, then you're not going to get it anything close to working like it did 1980s to present.
55/45 UPRO/TMF
1955-2018 - 0.11%
1955-1982 - 0.22%
1982-2018 - 0.53%
40/60 UPRO/TMF
1955-2018 - 0.12%
1955-1982 - (-0.01%)
1982-2018 - 0.69%
This really takes a hit on my feelings towards the strategy.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
To use PV instead of Simba's spreadsheet, a custom data set ("CASHZERO") is required.MotoTrojan wrote: ↑Tue Aug 13, 2019 8:34 pm First off, CASHX in Portfolio Visualizer gives the return of t-bills so that is skewing those results.
https://textuploader.com/11ucw
It's just 0 returns in every month. Save as CSV, upload to Portfolio Visualizer.
The 'rebalancing bonus' was bigger for quarterly. Originally I looked at it annually.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I don’t follow your line of questioning.MotoTrojan wrote: ↑Tue Aug 13, 2019 8:38 pmThe returns since July 2012 have been well above 9-10% so how does that prove anything? Why are you ignoring math that says you can't achieve the past total return without TMF achieving what it did in the past, while agreeing that TMF won't be able to do that?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:54 pmThe natural state of the stock market is bull mode - how else would the 90 year CAGR on US stocks be 9-10%? Why else would we recommend young people tilt toward equities?MotoTrojan wrote: ↑Tue Aug 13, 2019 6:52 pmEquity bull. What happens over the next 30 years though?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pmHere is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
1. I acknowledge that the capital return on TMF was a significant contributor to returns since the 1980s.
2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
3. I have also shown that despite #2, the strategy can still deliver outsize returns, as shown since July 2012.
4. Yes, #3 is attributable to an equity bull market, but if you did not have faith in that continuing, you shouldn’t be leveraging anything in the first place.
Last edited by HEDGEFUNDIE on Tue Aug 13, 2019 9:31 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
This comparison is more in-favor of your approach but interesting none-the-less. Shows the rebalancing bonus, even with a modest negative TMF return, however the volatility goes up significantly; worth it for a solid 1.5%-1.7% CAGR improvement (bumping up due to CASHX).HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pmHere is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
https://www.portfoliovisualizer.com/bac ... total3=100
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
This is supposed to be a portfolio immune to bulls vs. bears, not used to time when one thinks a bull is here to stay. You showed how this 1.65X equity exposure beat out a 1.0X exposure via PSLDX, but you did this during a raging bull. I don't think you proved anything. Show me how it does in a full market cycle with rates remaining unchanged and I will be intrigued.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:30 pmI don’t follow your line of questioning.MotoTrojan wrote: ↑Tue Aug 13, 2019 8:38 pmThe returns since July 2012 have been well above 9-10% so how does that prove anything? Why are you ignoring math that says you can't achieve the past total return without TMF achieving what it did in the past, while agreeing that TMF won't be able to do that?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:54 pmThe natural state of the stock market is bull mode - how else would the 90 year CAGR on US stocks be 9-10%? Why else would we recommend young people tilt toward equities?MotoTrojan wrote: ↑Tue Aug 13, 2019 6:52 pmEquity bull. What happens over the next 30 years though?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pm
Here is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to me
https://www.portfoliovisualizer.com/bac ... 0&total3=0
1. I acknowledge that the capital return on TMF was a significant contributor to returns since the 1980s.
2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
3. I have also shown that despite #2, the strategy can still deliver outsize returns, as shown since July 2012.
4. Yes, #3 happened during an equity bull market, wnut if you did not have faith in that continuing, you shouldn’t be leveraging anything in the first place.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
CASHX won’t save your hide in an equity crash.MotoTrojan wrote: ↑Tue Aug 13, 2019 9:31 pmThis comparison is more in-favor of your approach but interesting none-the-less. Shows the rebalancing bonus, even with a modest negative TMF return, however the volatility goes up significantly; worth it for a solid 1.5%-1.7% CAGR improvement (bumping up due to CASHX).HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pmHere is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
https://www.portfoliovisualizer.com/bac ... total3=100
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I do not know of any reason bond funds cannot go up in value even if rates go negative. In fact, they should go up by a very large amount if rates indeed went negative.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:30 pm 2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I have never said this strategy is “immune” to anything.MotoTrojan wrote: ↑Tue Aug 13, 2019 9:33 pmThis is supposed to be a portfolio immune to bulls vs. bears, not used to time when one thinks a bull is here to stay. You showed how this 1.65X equity exposure beat out a 1.0X exposure via PSLDX, but you did this during a raging bull. I don't think you proved anything. Show me how it does in a full market cycle with rates remaining unchanged and I will be intrigued.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:30 pmI don’t follow your line of questioning.MotoTrojan wrote: ↑Tue Aug 13, 2019 8:38 pmThe returns since July 2012 have been well above 9-10% so how does that prove anything? Why are you ignoring math that says you can't achieve the past total return without TMF achieving what it did in the past, while agreeing that TMF won't be able to do that?HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:54 pmThe natural state of the stock market is bull mode - how else would the 90 year CAGR on US stocks be 9-10%? Why else would we recommend young people tilt toward equities?MotoTrojan wrote: ↑Tue Aug 13, 2019 6:52 pm
Equity bull. What happens over the next 30 years though?
1. I acknowledge that the capital return on TMF was a significant contributor to returns since the 1980s.
2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
3. I have also shown that despite #2, the strategy can still deliver outsize returns, as shown since July 2012.
4. Yes, #3 happened during an equity bull market, wnut if you did not have faith in that continuing, you shouldn’t be leveraging anything in the first place.
I have been consistent since the beginning in saying that the strategy compares favorably to a 100% equity position.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I agree, but I do think there is a cap on how negative rates can go, it’s probably in the low single negative digits.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:35 pmI do not know of any reason bond funds cannot go up in value even if rates go negative. In fact, they should go up by a very large amount if rates indeed went negative.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:30 pm 2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Another very telling example is Jan 2009 - Dec 2013 where TMF had a -0.6% CAGR but walloped the 55/45 UPRO/CASHX 34.4% to 27.5%... so there certainly has been a rebalancing bonus in flat TMF conditions in the last decade.MotoTrojan wrote: ↑Tue Aug 13, 2019 9:31 pmThis comparison is more in-favor of your approach but interesting none-the-less. Shows the rebalancing bonus, even with a modest negative TMF return, however the volatility goes up significantly; worth it for a solid 1.5%-1.7% CAGR improvement (bumping up due to CASHX).HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 6:50 pmHere is a comparison of PSLDX with the revised strategy since July 2012, the first time long rates dropped into the mid-2s. The light still seems plenty bright to meMotoTrojan wrote: ↑Tue Aug 13, 2019 4:08 pm I am opening an IRA with Ally and will be moving a good chunk of my Roth over to invest in PSLDX. I may leave $5-10K in here just to enjoy the ride but I am feeling enlightened based on MoneyMarathon's rebalancing bonus math.
I still hope you all get yachts but I am struggling to see the light anymore.
https://www.portfoliovisualizer.com/bac ... 0&total3=0
https://www.portfoliovisualizer.com/bac ... total3=100
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
True, but the increase in bond fund price is also exponential as rates go lower, so even a single basis point change past zero could mean a 10 or 20% gain in LTT.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:36 pmI agree, but I do think there is a cap on how negative rates can go, it’s probably in the low single negative digits.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:35 pmI do not know of any reason bond funds cannot go up in value even if rates go negative. In fact, they should go up by a very large amount if rates indeed went negative.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:30 pm 2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
If rates rise, TMF is going to look like stocks in 1999.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Doesn't that phenomenon's derivative peak at 0% rates and then start to reduce symmetrically as the rates go to negative? Ie the change from 0.5% to 0% is the same as 0% to -0.5%.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:39 pmTrue, but the increase in bond fund price is also exponential as rates go lower, so even a single basis point change past zero could mean a 10 or 20% gain in LTT.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:36 pmI agree, but I do think there is a cap on how negative rates can go, it’s probably in the low single negative digits.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:35 pmI do not know of any reason bond funds cannot go up in value even if rates go negative. In fact, they should go up by a very large amount if rates indeed went negative.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:30 pm 2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
If rates rise, TMF is going to look like stocks in 1999.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
In order for the rate to be negative for existing bonds, people need to pay for the right to own them. Ie, they're still going to pay more. Unless my math is wrong.MotoTrojan wrote: ↑Tue Aug 13, 2019 9:43 pmDoesn't that phenomenon's derivative peak at 0% rates and then start to reduce symmetrically as the rates go to negative? Ie the change from 0.5% to 0% is the same as 0% to -0.5%.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:39 pmTrue, but the increase in bond fund price is also exponential as rates go lower, so even a single basis point change past zero could mean a 10 or 20% gain in LTT.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:36 pmI agree, but I do think there is a cap on how negative rates can go, it’s probably in the low single negative digits.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:35 pmI do not know of any reason bond funds cannot go up in value even if rates go negative. In fact, they should go up by a very large amount if rates indeed went negative.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:30 pm 2. I also acknowledge that at 2%, TMF’s upside from here is capped. Which is why I made my AA change to 55/45.
If rates rise, TMF is going to look like stocks in 1999.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I am not arguing that the bond prices won't continue to go up, just stating that the maximum rate of capital price gain per interest rate change (due to convexity) occurs as the yield passes through 0%.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:51 pmIn order for the rate to be negative for existing bonds, people need to pay for the right to own them. Ie, they're still going to pay more. Unless my math is wrong.MotoTrojan wrote: ↑Tue Aug 13, 2019 9:43 pmDoesn't that phenomenon's derivative peak at 0% rates and then start to reduce symmetrically as the rates go to negative? Ie the change from 0.5% to 0% is the same as 0% to -0.5%.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:39 pmTrue, but the increase in bond fund price is also exponential as rates go lower, so even a single basis point change past zero could mean a 10 or 20% gain in LTT.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:36 pmI agree, but I do think there is a cap on how negative rates can go, it’s probably in the low single negative digits.
If rates rise, TMF is going to look like stocks in 1999.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Let me try to explain the hand-wavy math I used (but... be warned it might only be more confusing than the original hand waving).MotoTrojan wrote: ↑Tue Aug 13, 2019 8:41 pm These are not two portfolios held separately then added together, they are means of simulating each assets contribution to the portfolio as a whole. If one of them goes up 10x and the other 3x, then the total growth was 30x, not 13x.
Weighted average rate of returns is a weighted sum of the rate of growth of each investment. Wikipedia page:
https://en.wikipedia.org/wiki/Rate_of_r ... _portfolio
When I set up my little experiment, I calculated a total return (over time) that had an associated CAGR that was tied to a larger amount of capital than what was relevant (e.g., the whole 100% instead of the 40% in UPRO). To get the weighted sum of the rate of growth of each investment, we'd first want to get the CAGR based on each individual smaller amount of capital allocated to the investment. But, if we use these weird, unadjusted whole-portfolio CAGR to get a weighted sum, then the weighted sum: 0.4 * (x / 0.4) + 0.6 * (y / 0.6) = x + y, where x and y are the respective CAGRs of the 40% UPRO/60% CASHZERO and 60% TMF/40% CASHZERO rebalanced portfolios. So the weighted sum for the rate of growth is just x + y of the weird (unadjusted to the actual amount of principal for the individual investment, and instead looking at contribution to the whole portfolio) CAGRs. So expected portfolio CAGR = x + y, with steady growth (and without including any bonus effects from rebalancing negatively correlated investments).
A = P * e ^ (rt) is one expression of the exponential growth formula. And if r = x + y, then:
A = P * e ^ ( (x + y) t) = P * e ^ (x t) * e ^ (y t)
Now if we compute B = P * e ^ (x t) / P = e ^ (x t) and compute C = P * e ^ (y t) / P = e ^ (y t), where B is the total return on cash over the whole time period for the 40% UPRO/60% CASHZERO portfolio and where C is the same thing for 60% TMF/40% CASHZERO, and where P is the original principal, then:
P * B * C = P * e ^ (x t) * e ^ (y t) = P * e ^ ( (x + y) t) = P * e ^ (rt) = A
And to the extent that the observed result is different from P * B * C, that looks like the effect of the 'rebalancing bonus' from negative correlation. Note again that it's larger for the quarterly rebalancing, so the 0.5% CAGR figure that was thrown around does not necessarily apply to quarterly rebalancing. The approximate 0.5% CAGR figure was based on looking at annual rebalancing over the last 32 years. So anyone using quarterly rebalancing may want to include an appropriately larger bonus from rebalancing based on that method.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
I've been in this for about a week or so now. 30K total split 3 ways between
1 - OP Strategy - changing it to 55/45 UPRO/TMF so I can stay with the base strategy; Quarterly rebalance
2 - 20 Day Risk Parity lookback; Monthly rebalance
3 - 20% Volatility lookback over 20 days (weighting recent days higher than less recent days) Monthly rebalance
Right now I'm up 1.2K. I'm going to have to resist the urge to add to this strategy as part of me thinks this is going to end badly.
1 - OP Strategy - changing it to 55/45 UPRO/TMF so I can stay with the base strategy; Quarterly rebalance
2 - 20 Day Risk Parity lookback; Monthly rebalance
3 - 20% Volatility lookback over 20 days (weighting recent days higher than less recent days) Monthly rebalance
Right now I'm up 1.2K. I'm going to have to resist the urge to add to this strategy as part of me thinks this is going to end badly.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
What math dictates that the exponential climb upwards stops at zero?MotoTrojan wrote: ↑Tue Aug 13, 2019 9:55 pmI am not arguing that the bond prices won't continue to go up, just stating that the maximum rate of capital price gain per interest rate change (due to convexity) occurs as the yield passes through 0%.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:51 pmIn order for the rate to be negative for existing bonds, people need to pay for the right to own them. Ie, they're still going to pay more. Unless my math is wrong.MotoTrojan wrote: ↑Tue Aug 13, 2019 9:43 pmDoesn't that phenomenon's derivative peak at 0% rates and then start to reduce symmetrically as the rates go to negative? Ie the change from 0.5% to 0% is the same as 0% to -0.5%.Lee_WSP wrote: ↑Tue Aug 13, 2019 9:39 pmTrue, but the increase in bond fund price is also exponential as rates go lower, so even a single basis point change past zero could mean a 10 or 20% gain in LTT.HEDGEFUNDIE wrote: ↑Tue Aug 13, 2019 9:36 pm
I agree, but I do think there is a cap on how negative rates can go, it’s probably in the low single negative digits.
If rates rise, TMF is going to look like stocks in 1999.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Why do you think this will end badly?caklim00 wrote: ↑Tue Aug 13, 2019 10:02 pm I've been in this for about a week or so now. 30K total split 3 ways between
1 - OP Strategy - changing it to 55/45 UPRO/TMF so I can stay with the base strategy; Quarterly rebalance
2 - 20 Day Risk Parity lookback; Monthly rebalance
3 - 20% Volatility lookback over 20 days (weighting recent days higher than less recent days) Monthly rebalance
Right now I'm up 1.2K. I'm going to have to resist the urge to add to this strategy as part of me thinks this is going to end badly.
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
All bull markets die a painful death via bear mauling. As such, we'll all be taking a bath even if only on paper.inatangle wrote: ↑Tue Aug 13, 2019 10:42 pmWhy do you think this will end badly?caklim00 wrote: ↑Tue Aug 13, 2019 10:02 pm I've been in this for about a week or so now. 30K total split 3 ways between
1 - OP Strategy - changing it to 55/45 UPRO/TMF so I can stay with the base strategy; Quarterly rebalance
2 - 20 Day Risk Parity lookback; Monthly rebalance
3 - 20% Volatility lookback over 20 days (weighting recent days higher than less recent days) Monthly rebalance
Right now I'm up 1.2K. I'm going to have to resist the urge to add to this strategy as part of me thinks this is going to end badly.