I didn't set it up to refresh each day. If folks want that feature I or someone else could do so.haranoth wrote: ↑Wed Sep 09, 2020 2:50 pmHi,perfectuncertainty wrote: ↑Wed Sep 09, 2020 1:20 pmUPDATED SpreadsheetMickelous wrote: ↑Wed Sep 09, 2020 8:09 amNot allowing me to access it now.perfectuncertainty wrote: ↑Tue Sep 08, 2020 11:01 pm For those of you wanting a 6month volatility version for AAA here is an updated version.
I also added an additional AAA InverseVolatility Calculation that allows one to combine UPRO, TQQQ and UPRO and allocate accordingly. To duplicate this in PV here are the parameters and the backtest
AAA6Mo
Again, I prefer the 21day version for reasons I've already stated.
It's showing the calculations through September 8th. PV doesn't have them updated yet, but they should match for a 6 month Volatility Period as the input, varying Inverse volatility, and Minimum Variance.
Is this google sheets automatically updated everyday, I couldn't find the place, where you pull the data automatically for UPRO, TMF e.g.
=GOOGLEFINANCE("NYSEARCA:UPRO","price",TODAY()21,TODAY())
Just asking, since I would like to actually take your sheet and modify it to figure out how much of a difference AAA minimum variance vs AAA inverse volatility vs Will's 25% target volatility vs. HFEA original 55/45 portfolio makes
Thanks for providing the google sheet, it's good to see some of the associated equations and try to learn some of this lingo.
HEDGEFUNDIE's excellent adventure Part II: The next journey

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

 Posts: 82
 Joined: Wed Apr 01, 2020 11:40 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
That is super helpful, thank you! As a follow up, how is the Combo combined? averaging the two weights?jarjarM wrote: ↑Wed Sep 09, 2020 1:31 pm
Here is the original AAA strategy proposed by smartly based on the white paper:
Momentum (6 months look back) is build into minimum variance but not really applicable here. The original paper uses 10 assets class and pick the top 5. However, the covariance matrix is utilizing 6month look back (6*21 trading days). For momentum, it's picking the top 2 and go 50/50 (or 33.3/33.3/33.3 for top 3). Combo is combining momentum and inverse volatility together. Hope this helps.Strategy rules tested:
 At the close on the last trading day of the month, calculate the 6month (126day) return for each of the following 10 asset classes: US equities (represented by SPY), European equities (EZU), Japanese equities (EWJ), emerging market equities (EEM), US REITs (VNQ), international REITs (RWX), US 10year Treasuries (IEF), US 30year Treasuries (TLT), commodities (DBC) and gold (GLD).
 Go long at the close the five assets (i.e. half of the portfolio) with the highest 6month return. Weight the five assets according to minimum variance optimization, using a “weighted” covariance matrix calculated based on 126day correlation and 20day volatility.
 Hold positions until the final trading day of the following month. Rebalance the entire portfolio monthly, regardless of whether there is a change in position.
For your Minimum Variance on this chart did you use the 126 day correlation and 20 day volatility? (i.e. does the new spreadsheet that kerstverlitchting so kindly provided include enough data points to fully be minimum variance (if it is only using 21 days data))?

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
If it’s not a lot of work that would be useful to some I think, including those on Mac for whom the other spreadsheet doesn’t update.perfectuncertainty wrote: ↑Wed Sep 09, 2020 2:55 pm I didn't set it up to refresh each day. If folks want that feature I or someone else could do so.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Has there been resolution on the inclusion of VXX? Something like 70 UPRO 25 TMF 5 VXX?
"Discipline equals Freedom"  Jocko Willink
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Adding VXX has being pretty bad to the performance of the portfolio since 2010  9/8/2020
Code: Select all
UPRO only 70/25/5 Portfolio
cagr 28.96 28.72
sharpe 0.76 1.07
volatility 0.52 0.27
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Wait what? 70/25/5 looks like an improvement. CAGR is nearly identical, sharpe is up a lot, and volatility is down a lot.jarjarM wrote: ↑Wed Sep 09, 2020 6:23 pmAdding VXX has being pretty bad to the performance of the portfolio since 2010  9/8/2020
Code: Select all
UPRO only 70/25/5 Portfolio cagr 28.96 28.72 sharpe 0.76 1.07 volatility 0.52 0.27
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Sorry, this is what happens when I try to post something in between meeting in a hurry, I mean to compare to the OG 55/45 UPRO/TMF and its several variance.langlands wrote: ↑Wed Sep 09, 2020 6:46 pmWait what? 70/25/5 looks like an improvement. CAGR is nearly identical, sharpe is up a lot, and volatility is down a lot.jarjarM wrote: ↑Wed Sep 09, 2020 6:23 pmAdding VXX has being pretty bad to the performance of the portfolio since 2010  9/8/2020
Code: Select all
UPRO only 70/25/5 Portfolio cagr 28.96 28.72 sharpe 0.76 1.07 volatility 0.52 0.27
Adding VXX has being pretty bad to the performance of the portfolio since 2010  9/8/2020
Code: Select all
UPRO only 70/25/5 Portfolio 55/45OGPortfolio InverseVol AdapAssetAlloc
cagr 28.96 28.72 31.3 32.9 33.6
sharpe 0.76 1.07 1.24 1.31 1.31
volatility 0.52 0.27 0.24 0.24 0.25
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Yes, the original backtest shown was using the same parameters as presented in smartly's strategy paper. I don't think the new spreadsheet uses 126 day correlation due to the fact that yahoo only allows download data of 100 days. I uses Tiingo API and python to do my backtest as my little side project during the pandemic, just for fun.RovenSkyfall wrote: ↑Wed Sep 09, 2020 2:55 pmThat is super helpful, thank you! As a follow up, how is the Combo combined? averaging the two weights?jarjarM wrote: ↑Wed Sep 09, 2020 1:31 pm
Here is the original AAA strategy proposed by smartly based on the white paper:
Momentum (6 months look back) is build into minimum variance but not really applicable here. The original paper uses 10 assets class and pick the top 5. However, the covariance matrix is utilizing 6month look back (6*21 trading days). For momentum, it's picking the top 2 and go 50/50 (or 33.3/33.3/33.3 for top 3). Combo is combining momentum and inverse volatility together. Hope this helps.Strategy rules tested:
 At the close on the last trading day of the month, calculate the 6month (126day) return for each of the following 10 asset classes: US equities (represented by SPY), European equities (EZU), Japanese equities (EWJ), emerging market equities (EEM), US REITs (VNQ), international REITs (RWX), US 10year Treasuries (IEF), US 30year Treasuries (TLT), commodities (DBC) and gold (GLD).
 Go long at the close the five assets (i.e. half of the portfolio) with the highest 6month return. Weight the five assets according to minimum variance optimization, using a “weighted” covariance matrix calculated based on 126day correlation and 20day volatility.
 Hold positions until the final trading day of the following month. Rebalance the entire portfolio monthly, regardless of whether there is a change in position.
For your Minimum Variance on this chart did you use the 126 day correlation and 20 day volatility? (i.e. does the new spreadsheet that kerstverlitchting so kindly provided include enough data points to fully be minimum variance (if it is only using 21 days data))?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Have you shared the code elsewhere in the thread? If not, I'd love to see it!jarjarM wrote: ↑Wed Sep 09, 2020 7:42 pm Yes, the original backtest shown was using the same parameters as presented in smartly's strategy paper. I don't think the new spreadsheet uses 126 day correlation due to the fact that yahoo only allows download data of 100 days. I uses Tiingo API and python to do my backtest as my little side project during the pandemic, just for fun.
 kerstverlichting
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 Joined: Tue Feb 11, 2020 5:26 am
 Contact:
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)jarjarM wrote: ↑Wed Sep 09, 2020 7:42 pmYes, the original backtest shown was using the same parameters as presented in smartly's strategy paper. I don't think the new spreadsheet uses 126 day correlation due to the fact that yahoo only allows download data of 100 days. I uses Tiingo API and python to do my backtest as my little side project during the pandemic, just for fun.RovenSkyfall wrote: ↑Wed Sep 09, 2020 2:55 pmThat is super helpful, thank you! As a follow up, how is the Combo combined? averaging the two weights?jarjarM wrote: ↑Wed Sep 09, 2020 1:31 pm
Here is the original AAA strategy proposed by smartly based on the white paper:
Momentum (6 months look back) is build into minimum variance but not really applicable here. The original paper uses 10 assets class and pick the top 5. However, the covariance matrix is utilizing 6month look back (6*21 trading days). For momentum, it's picking the top 2 and go 50/50 (or 33.3/33.3/33.3 for top 3). Combo is combining momentum and inverse volatility together. Hope this helps.Strategy rules tested:
 At the close on the last trading day of the month, calculate the 6month (126day) return for each of the following 10 asset classes: US equities (represented by SPY), European equities (EZU), Japanese equities (EWJ), emerging market equities (EEM), US REITs (VNQ), international REITs (RWX), US 10year Treasuries (IEF), US 30year Treasuries (TLT), commodities (DBC) and gold (GLD).
 Go long at the close the five assets (i.e. half of the portfolio) with the highest 6month return. Weight the five assets according to minimum variance optimization, using a “weighted” covariance matrix calculated based on 126day correlation and 20day volatility.
 Hold positions until the final trading day of the following month. Rebalance the entire portfolio monthly, regardless of whether there is a change in position.
For your Minimum Variance on this chart did you use the 126 day correlation and 20 day volatility? (i.e. does the new spreadsheet that kerstverlitchting so kindly provided include enough data points to fully be minimum variance (if it is only using 21 days data))?
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?

 Posts: 526
 Joined: Thu Dec 12, 2019 4:58 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Is there a way to do a sidebyside comparison of these adaptive allocation models vs fixed allocation models (e.g. 55/45 UPRO/TMF, 52/48 TQQQ/TMF) in PV? I can't seem to work out how to do that....perfectuncertainty wrote: ↑Wed Sep 09, 2020 2:55 pm I also added an additional AAA InverseVolatility Calculation that allows one to combine UPRO, TQQQ and UPRO and allocate accordingly. To duplicate this in PV here are the parameters and the backtest

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Not sure I understand what you are looking for, but I haven't seen sidebyside comparisons. I've run the backtests separately in PV and noted the results which include the regular outputs from PV. For AAA, you rebalance every month, whereas for fixed you set up the rebalance paramters.occambogle wrote: ↑Thu Sep 10, 2020 1:41 am
Is there a way to do a sidebyside comparison of these adaptive allocation models vs fixed allocation models (e.g. 55/45 UPRO/TMF, 52/48 TQQQ/TMF) in PV? I can't seem to work out how to do that....
 kerstverlichting
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 Contact:
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Alright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
EDIT: New version: viewtopic.php?p=5496322#p5496322
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
Last edited by kerstverlichting on Tue Sep 15, 2020 9:43 am, edited 2 times in total.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
20 day volatility = Standard Deviation of daily returns for past 20 trading days.
inverse volatility = 1 / volatility = 1/ Standard Deviation
Rebalancing using inverse volatility = portfolio allocation of an ETF = inverse volatility of the ETF / sum of inverse volatility of both ETFs.
Refer to Section 3.1 of following research paper. I used the equation in this section to calculate portfolio allocation.
Mailard S., Roncalli T., Teiletche J., On the properties of equallyweighted risk contributions portfolios, (May 2009)
http://www.thierryroncalli.com/download/erc.pdf. Older version available at SSRN at https://papers.ssrn.com/sol3/papers.cfm ... id=1271972
inverse volatility = 1 / volatility = 1/ Standard Deviation
Rebalancing using inverse volatility = portfolio allocation of an ETF = inverse volatility of the ETF / sum of inverse volatility of both ETFs.
Refer to Section 3.1 of following research paper. I used the equation in this section to calculate portfolio allocation.
Mailard S., Roncalli T., Teiletche J., On the properties of equallyweighted risk contributions portfolios, (May 2009)
http://www.thierryroncalli.com/download/erc.pdf. Older version available at SSRN at https://papers.ssrn.com/sol3/papers.cfm ... id=1271972

 Posts: 82
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
kerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Yeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 amkerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Great stuff, really enjoying reading up on AAA and how to employ this strategy. I want to make sure I'm understanding this correctly.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Alright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
I'm a little surprised at the AAA recommendation based on the data of 19.8% stock and 80.2% bond inverse volatility allocation compared to the typical 55/45 strategy. Is it common for AAA to lean heavier into the bond allocation? Curious what the experience has been for those who have been using AAA awhile and also want to ensure I'm interpreting this data correctly.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
It seems like the discussion has swung from a conversation around a higher stock to bond ratio (80/20) to the opposite. As I understand it, holding bonds in excess of 45% runs contrary to the risk profile of this entire strategy and its offshoots.
Maybe Uncorrelated can weigh in on this  it might be better to just deleverage than to run in reverse. 20/80 UPRO/TMF seems like a septuagenarian retirement fund on meth.
Maybe Uncorrelated can weigh in on this  it might be better to just deleverage than to run in reverse. 20/80 UPRO/TMF seems like a septuagenarian retirement fund on meth.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
You checked the results from the back tests?tomphilly wrote: ↑Thu Sep 10, 2020 9:35 am It seems like the discussion has swung from a conversation around a higher stock to bond ratio (80/20) to the opposite. As I understand it, holding bonds in excess of 45% runs contrary to the risk profile of this entire strategy and its offshoots.
Maybe Uncorrelated can weigh in on this  it might be better to just deleverage than to run in reverse. 20/80 UPRO/TMF seems like a septuagenarian retirement fund on meth.
 willthrill81
 Posts: 20829
 Joined: Thu Jan 26, 2017 3:17 pm
 Location: USA
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I don't think I have the...nerves...to handle that. While my returns have been beyond excellent (45% in 15 months), I don't know that I could hold on if I was use a large portion of my portfolio. Even Hedgefundie didn't go for that.Mickelous wrote: ↑Thu Sep 10, 2020 8:21 amYeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 amkerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
I genuinely hope that it works out for you.
“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
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I'm only 31 so I figure I can handle the volatility. Best case scenario I retire in 10 years worst case oh well I'm young.willthrill81 wrote: ↑Thu Sep 10, 2020 10:21 amI don't think I have the...nerves...to handle that. While my returns have been beyond excellent (45% in 15 months), I don't know that I could hold on if I was use a large portion of my portfolio. Even Hedgefundie didn't go for that.Mickelous wrote: ↑Thu Sep 10, 2020 8:21 amYeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 amkerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
I genuinely hope that it works out for you.
 willthrill81
 Posts: 20829
 Joined: Thu Jan 26, 2017 3:17 pm
 Location: USA
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I would have heart palpitations watching my account, which wouldn't be nearly as large as many around here, swing by tens of thousands of dollars or more on a regular basis. But if you can avoid looking at it, maybe you'll be able to stay the course. The upside potential is undeniably large.Mickelous wrote: ↑Thu Sep 10, 2020 10:34 amI'm only 31 so I figure I can handle the volatility. Best case scenario I retire in 10 years worst case oh well I'm young.willthrill81 wrote: ↑Thu Sep 10, 2020 10:21 amI don't think I have the...nerves...to handle that. While my returns have been beyond excellent (45% in 15 months), I don't know that I could hold on if I was use a large portion of my portfolio. Even Hedgefundie didn't go for that.Mickelous wrote: ↑Thu Sep 10, 2020 8:21 amYeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 amkerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 am
Alright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
I genuinely hope that it works out for you.
“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
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Yes, I did  to do a fairer comparison to HFEA or TV you need to remove TQQQ from the backtest or add it to HFEA's and TV's backtest  TQQQ makes any 10 year backtest look amazing. As far as I can tell, an AA model with UPRO & TMF significantly underperforms vanilla HFEA and the riskier TV strategy, as far as CAGR. Note the Vanguard benchmark is consistent across all three backtests. Also note that TV can be further CAGR optimized in practice by not exceeding 45% TMF when being signaled to do so by the PV forward volatility signal.
AA (UPRO & TMF only)  PV:
HFEA UPRO/TMF 55/45  PV:
TV UPRO/TMF 80/20 @ 35% volatility  PV:
Last edited by tomphilly on Thu Sep 10, 2020 10:55 am, edited 2 times in total.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I tried adding UGL to that spreadsheet replacing GLD and it would reference the data in the overview sheet although I got the data to work in the database. Sad that UGLD is no more.

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 Joined: Wed Apr 01, 2020 11:40 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Here is a PV link here showing the difference between equally weighted (almost HFEA) vs AAA. If you go to "Timing Periods" you can see the breakdown of the different allocations for the AAA.tomphilly wrote: ↑Thu Sep 10, 2020 10:41 amYes, I did  to do a fairer comparison to HFEA or TV you need to remove TQQQ from the backtest or add it to HFEA's and TV's backtest  TQQQ makes any 10 year backtest look impressive. As far as I tell, an AA model with UPRO & TMF significantly underperforms vanilla HFEA and the riskier TV strategy, as far as CAGR. Note the Vanguard benchmark is consistent across all three backtests. Also note that TV can be further CAGR optimized by not exceeding 45% TMF when being signaled to do so by the PV forward signal.
AA (UPRO & TMF only)  PV:
HFEA UPRO/TMF 55/45  PV:
TV UPRO/TMF 80/20 @ 35% volatility  PV:
If your link is what you applied, I think you may have applied some incorrect features to the AA. From my understanding it ought to be 21 day volatility period and minimum variance for allocation weight.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I just laugh on the down days like the last two times tqqq dropped 15 percent in a day recently. Just an opportunity to rebalance some tmf in there come rebalancing time. I take failure pretty well.willthrill81 wrote: ↑Thu Sep 10, 2020 10:38 amI would have heart palpitations watching my account, which wouldn't be nearly as large as many around here, swing by tens of thousands of dollars or more on a regular basis. But if you can avoid looking at it, maybe you'll be able to stay the course. The upside potential is undeniably large.Mickelous wrote: ↑Thu Sep 10, 2020 10:34 amI'm only 31 so I figure I can handle the volatility. Best case scenario I retire in 10 years worst case oh well I'm young.willthrill81 wrote: ↑Thu Sep 10, 2020 10:21 amI don't think I have the...nerves...to handle that. While my returns have been beyond excellent (45% in 15 months), I don't know that I could hold on if I was use a large portion of my portfolio. Even Hedgefundie didn't go for that.Mickelous wrote: ↑Thu Sep 10, 2020 8:21 amYeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 am
kerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.
I genuinely hope that it works out for you.
 kerstverlichting
 Posts: 27
 Joined: Tue Feb 11, 2020 5:26 am
 Contact:
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
OK wow, I just put the thing together in two days in between work. please be careful as I didn't fully check everything and it heavily relies on perfect uncertainty's calculations (which I also didn't verify). Cool to hear folks are so happy with it btw. I only got a few k to put into this strategy myself but it's fun being part of a community to do it together with.Mickelous wrote: ↑Thu Sep 10, 2020 8:21 amYeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 amkerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
xxx
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
Ah yes, I checked this for you, seems to be the case because of the odd mix of TQQQ/UPRO/TMF/TYD in the preview. A "normal" UPRO/TMF allocation (21 days volatility) ends up with just under 60% in TMF:nehawk87 wrote: ↑Thu Sep 10, 2020 8:31 amGreat stuff, really enjoying reading up on AAA and how to employ this strategy. I want to make sure I'm understanding this correctly.
I'm a little surprised at the AAA recommendation based on the data of 19.8% stock and 80.2% bond inverse volatility allocation compared to the typical 55/45 strategy. Is it common for AAA to lean heavier into the bond allocation? Curious what the experience has been for those who have been using AAA awhile and also want to ensure I'm interpreting this data correctly.
Seems more reasonable, right?
Still though, I advise people to double check everything and let me know if something seems amiss.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I've been in a modified HFEA for 4 months now so this is just a tweak.kerstverlichting wrote: ↑Thu Sep 10, 2020 11:05 amOK wow, I just put the thing together in two days in between work. please be careful as I didn't fully check everything and it heavily relies on perfect uncertainty's calculations (which I also didn't verify). Cool to hear folks are so happy with it btw. I only got a few k to put into this strategy myself but it's fun being part of a community to do it together with.Mickelous wrote: ↑Thu Sep 10, 2020 8:21 amYeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 amkerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
xxx
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
Ah yes, I checked this for you, seems to be the case because of the odd mix of TQQQ/UPRO/TMF/TYD in the preview. A "normal" UPRO/TMF allocation (21 days volatility) ends up with just under 60% in TMF:nehawk87 wrote: ↑Thu Sep 10, 2020 8:31 amGreat stuff, really enjoying reading up on AAA and how to employ this strategy. I want to make sure I'm understanding this correctly.
I'm a little surprised at the AAA recommendation based on the data of 19.8% stock and 80.2% bond inverse volatility allocation compared to the typical 55/45 strategy. Is it common for AAA to lean heavier into the bond allocation? Curious what the experience has been for those who have been using AAA awhile and also want to ensure I'm interpreting this data correctly.
Seems more reasonable, right?
Still though, I advise people to double check everything and let me know if something seems amiss.

 Posts: 12
 Joined: Wed Jun 24, 2020 10:20 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I use QLD rather than TQQQ or UPRO linktomphilly wrote: ↑Thu Sep 10, 2020 10:41 amYes, I did  to do a fairer comparison to HFEA or TV you need to remove TQQQ from the backtest or add it to HFEA's and TV's backtest  TQQQ makes any 10 year backtest look amazing. As far as I can tell, an AA model with UPRO & TMF significantly underperforms vanilla HFEA and the riskier TV strategy, as far as CAGR. Note the Vanguard benchmark is consistent across all three backtests. Also note that TV can be further CAGR optimized in practice by not exceeding 45% TMF when being signaled to do so by the PV forward volatility signal.
AA (UPRO & TMF only)  PV:
HFEA UPRO/TMF 55/45  PV:
TV UPRO/TMF 80/20 @ 35% volatility  PV:
Last edited by Perfect Uncertainty on Thu Sep 10, 2020 11:24 am, edited 1 time in total.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Tomphilly's original AA is using volatility of 6 months. If one uses 21 day volatility window, CAGR is ~45% better.RovenSkyfall wrote: ↑Thu Sep 10, 2020 10:56 amHere is a PV link here showing the difference between equally weighted (almost HFEA) vs AAA. If you go to "Timing Periods" you can see the breakdown of the different allocations for the AAA.tomphilly wrote: ↑Thu Sep 10, 2020 10:41 amYes, I did  to do a fairer comparison to HFEA or TV you need to remove TQQQ from the backtest or add it to HFEA's and TV's backtest  TQQQ makes any 10 year backtest look impressive. As far as I tell, an AA model with UPRO & TMF significantly underperforms vanilla HFEA and the riskier TV strategy, as far as CAGR. Note the Vanguard benchmark is consistent across all three backtests. Also note that TV can be further CAGR optimized by not exceeding 45% TMF when being signaled to do so by the PV forward signal.
AA (UPRO & TMF only)  PV:
HFEA UPRO/TMF 55/45  PV:
TV UPRO/TMF 80/20 @ 35% volatility  PV:
If your link is what you applied, I think you may have applied some incorrect features to the AA. From my understanding it ought to be 21 day volatility period and minimum variance for allocation weight.
https://www.portfoliovisualizer.com/tes ... odWeight=0
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Not yet, was going to fix a few items and publish it but got sidetracked by work project. Probably will jump back into fixing this little pet project in the next week or so I hope.cos wrote: ↑Wed Sep 09, 2020 9:33 pmHave you shared the code elsewhere in the thread? If not, I'd love to see it!jarjarM wrote: ↑Wed Sep 09, 2020 7:42 pm Yes, the original backtest shown was using the same parameters as presented in smartly's strategy paper. I don't think the new spreadsheet uses 126 day correlation due to the fact that yahoo only allows download data of 100 days. I uses Tiingo API and python to do my backtest as my little side project during the pandemic, just for fun.
 kerstverlichting
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I'll take a look at it tonight. Though I think 100 days or 126 days may not make much of a difference and any positive or negative will be more due to overfitting of past performance data. However, one thing I would say though is that there's real evidence (either thru backtest or academic study) that trading day makes difference. Last trading of the month is generally use for the calculation and then trade takes place using the first day of trading in next month. But one shifts to the trading day to middle of the month (11 day offset), one loses 2% in CAGR, or if one shift trading day toward 2nd 1/2 of the month (15 day offset), one loses 5% CAGR. Very crazy. I'll try to pose some of these backtest nugget tonight. But everyone should seriously consider their rebalance day, just food for thought.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 amMy sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)jarjarM wrote: ↑Wed Sep 09, 2020 7:42 pmYes, the original backtest shown was using the same parameters as presented in smartly's strategy paper. I don't think the new spreadsheet uses 126 day correlation due to the fact that yahoo only allows download data of 100 days. I uses Tiingo API and python to do my backtest as my little side project during the pandemic, just for fun.RovenSkyfall wrote: ↑Wed Sep 09, 2020 2:55 pmThat is super helpful, thank you! As a follow up, how is the Combo combined? averaging the two weights?jarjarM wrote: ↑Wed Sep 09, 2020 1:31 pm
Here is the original AAA strategy proposed by smartly based on the white paper:
Momentum (6 months look back) is build into minimum variance but not really applicable here. The original paper uses 10 assets class and pick the top 5. However, the covariance matrix is utilizing 6month look back (6*21 trading days). For momentum, it's picking the top 2 and go 50/50 (or 33.3/33.3/33.3 for top 3). Combo is combining momentum and inverse volatility together. Hope this helps.Strategy rules tested:
 At the close on the last trading day of the month, calculate the 6month (126day) return for each of the following 10 asset classes: US equities (represented by SPY), European equities (EZU), Japanese equities (EWJ), emerging market equities (EEM), US REITs (VNQ), international REITs (RWX), US 10year Treasuries (IEF), US 30year Treasuries (TLT), commodities (DBC) and gold (GLD).
 Go long at the close the five assets (i.e. half of the portfolio) with the highest 6month return. Weight the five assets according to minimum variance optimization, using a “weighted” covariance matrix calculated based on 126day correlation and 20day volatility.
 Hold positions until the final trading day of the following month. Rebalance the entire portfolio monthly, regardless of whether there is a change in position.
For your Minimum Variance on this chart did you use the 126 day correlation and 20 day volatility? (i.e. does the new spreadsheet that kerstverlitchting so kindly provided include enough data points to fully be minimum variance (if it is only using 21 days data))?
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I just used a previously provided backtest by perfectuncertainty and removed TQQQ for a fairer comparison:
perfectuncertainty wrote: ↑Wed Sep 09, 2020 2:55 pm I also added an additional AAA InverseVolatility Calculation that allows one to combine UPRO, TQQQ and UPRO and allocate accordingly. To duplicate this in PV here are the parameters and the backtest
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
After the drawdown the past week I'm up 20 percent.kerstverlichting wrote: ↑Thu Sep 10, 2020 11:19 amNice, how is it doing thus far?

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I put that link up because others wanted 6 months of volatility.
I don’t agree with 6 months of volatility or correlation coefficient usage for AAA. The nature of AAA is to rebalance every month so keeping 21 days is my recommendation. Otherwise set the trading frequency to 6 months too.
I don’t agree with 6 months of volatility or correlation coefficient usage for AAA. The nature of AAA is to rebalance every month so keeping 21 days is my recommendation. Otherwise set the trading frequency to 6 months too.

 Posts: 82
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
It looks like if you use minimum variance you might do a little bit better according to the PV link you sent.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Do you have an AA backtest with comparable CAGR to this 80/20 35% vol TV model?Perfect Uncertainty wrote: ↑Thu Sep 10, 2020 11:32 am I put that link up because others wanted 6 months of volatility.
I don’t agree with 6 months of volatility or correlation coefficient usage for AAA. The nature of AAA is to rebalance every month so keeping 21 days is my recommendation. Otherwise set the trading frequency to 6 months too.

 Posts: 82
 Joined: Wed Apr 01, 2020 11:40 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Thank you so much for pointing this out. I was literally wondering that this morning...jarjarM wrote: ↑Thu Sep 10, 2020 11:23 am
I'll take a look at it tonight. Though I think 100 days or 126 days may not make much of a difference and any positive or negative will be more due to overfitting of past performance data. However, one thing I would say though is that there's real evidence (either thru backtest or academic study) that trading day makes difference. Last trading of the month is generally use for the calculation and then trade takes place using the first day of trading in next month. But one shifts to the trading day to middle of the month (11 day offset), one loses 2% in CAGR, or if one shift trading day toward 2nd 1/2 of the month (15 day offset), one loses 5% CAGR. Very crazy. I'll try to pose some of these backtest nugget tonight. But everyone should seriously consider their rebalance day, just food for thought.

 Posts: 82
 Joined: Wed Apr 01, 2020 11:40 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Thank you PU, can you further explain this? I am trying to understand this topic as much as possible. It looked like for the original AAA they used minimum variance with a 6 month correlation and 21 day volatility. Wouldnt 6 months of correlation give one a better idea of actual correlation of asset classes rather than noise?Perfect Uncertainty wrote: ↑Thu Sep 10, 2020 11:32 am I put that link up because others wanted 6 months of volatility.
I don’t agree with 6 months of volatility or correlation coefficient usage for AAA. The nature of AAA is to rebalance every month so keeping 21 days is my recommendation. Otherwise set the trading frequency to 6 months too.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
The original AAA is based on 10 assets classes with far lower volatility than current LETFs due to leverage. Upon further examination of the original white paper and then looking at the LETFs behavior (distribution and etc), I think PU is on point in terms of using 1 month volatility (21 trading days). As for period for correlation, I think due to larger movement of the LETFs compare to original assets, significant correlation can be established in 1 month as well (remember correlation is heavily driven by outlier heavily leveraged point in statistical sense).RovenSkyfall wrote: ↑Thu Sep 10, 2020 11:56 amThank you PU, can you further explain this? I am trying to understand this topic as much as possible. It looked like for the original AAA they used minimum variance with a 6 month correlation and 21 day volatility. Wouldn't 6 months of correlation give one a better idea of actual correlation of asset classes rather than noise?Perfect Uncertainty wrote: ↑Thu Sep 10, 2020 11:32 am I put that link up because others wanted 6 months of volatility.
I don’t agree with 6 months of volatility or correlation coefficient usage for AAA. The nature of AAA is to rebalance every month so keeping 21 days is my recommendation. Otherwise set the trading frequency to 6 months too.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
MV does have the best CAGR result  also, note that there is no losing year (the worst year was +8.86%).RovenSkyfall wrote: ↑Thu Sep 10, 2020 11:50 amIt looks like if you use minimum variance you might do a little bit better according to the PV link you sent.
I use TQQQ, QLD, QQQ, TMF and TLT and put it into Inverse Volatility. Deleveraging with QQQ and TLT suits me.
Last edited by perfectuncertainty on Thu Sep 10, 2020 2:03 pm, edited 1 time in total.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Try this one: QLD Minimum Variance.tomphilly wrote: ↑Thu Sep 10, 2020 11:50 amDo you have an AA backtest with comparable CAGR to this 80/20 35% vol TV model?Perfect Uncertainty wrote: ↑Thu Sep 10, 2020 11:32 am I put that link up because others wanted 6 months of volatility.
I don’t agree with 6 months of volatility or correlation coefficient usage for AAA. The nature of AAA is to rebalance every month so keeping 21 days is my recommendation. Otherwise set the trading frequency to 6 months too.
The CAGR lags by 2%, however, look at the risk adjusted return. No losing years, Lower SD, Much smaller DD, Higher Sharpe and Higher Sortino. As a risk adjusted return I much prefer it.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Spot On JarJarM. The rebalancing ideally occurs monthly in a taxadvantaged account. With monthly rebalancing, we are adjusting to "current" conditions. With the spreadsheets that I and others have put out there  you can see daily changes in the recommended asset allocation. I would argue that one might be best served to use a similar approach to that of traditional banded rebalancing. Rebalance each month and if the asset allocation for the realtime or daily AAA model moves beyond certain thresholds (like 8%) consider rebalancing sooner. You might not outperform slower rebalancing, but from my testing, it's pretty close and or better and it works itself out quite nicely. I use the realtime model because it addresses slippage that occurs between EOD models and gaps in openings to avoid chasing your tail.jarjarM wrote: ↑Thu Sep 10, 2020 12:26 pmThe original AAA is based on 10 assets classes with far lower volatility than current LETFs due to leverage. Upon further examination of the original white paper and then looking at the LETFs behavior (distribution and etc), I think PU is on point in terms of using 1 month volatility (21 trading days). As for period for correlation, I think due to larger movement of the LETFs compare to original assets, significant correlation can be established in 1 month as well (remember correlation is heavily driven by outlier heavily leveraged point in statistical sense).RovenSkyfall wrote: ↑Thu Sep 10, 2020 11:56 amThank you PU, can you further explain this? I am trying to understand this topic as much as possible. It looked like for the original AAA they used minimum variance with a 6 month correlation and 21 day volatility. Wouldn't 6 months of correlation give one a better idea of actual correlation of asset classes rather than noise?Perfect Uncertainty wrote: ↑Thu Sep 10, 2020 11:32 am I put that link up because others wanted 6 months of volatility.
I don’t agree with 6 months of volatility or correlation coefficient usage for AAA. The nature of AAA is to rebalance every month so keeping 21 days is my recommendation. Otherwise set the trading frequency to 6 months too.

 Posts: 82
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
So am I understanding correctly? You are suggesting AAA monthly rebalancing may be combined with typical banded rebalancing to further diminish losses or jump onto gains earlier than the monthly rebalancing?perfectuncertainty wrote: ↑Thu Sep 10, 2020 2:11 pm
Spot On JarJarM. The rebalancing ideally occurs monthly in a taxadvantaged account. With monthly rebalancing, we are adjusting to "current" conditions. With the spreadsheets that I and others have put out there  you can see daily changes in the recommended asset allocation. I would argue that one might be best served to use a similar approach to that of traditional banded rebalancing. Rebalance each month and if the asset allocation for the realtime or daily AAA model moves beyond certain thresholds (like 8%) consider rebalancing sooner. You might not outperform slower rebalancing, but from my testing, it's pretty close and or better and it works itself out quite nicely. I use the realtime model because it addresses slippage that occurs between EOD models and gaps in openings to avoid chasing your tail.
Also, can you dumb down your last sentence?
What are slippage, EOD models and gaps in openings. Thank you!I use the realtime model because it addresses slippage that occurs between EOD models and gaps in openings to avoid chasing your tail.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
If you get a daily AAA reading and it says allocate 35% to UPRO and you want to execute the order the next day. Let’s say it’s a highly volatile period and UPRO gaps down over 5% at the open. I personally like to have the AAA close to realtime so I can execute my order accordingly
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I must be dumb beacuse I'm missing something. I thought the spreadsheet defaults to 21 days volatility? What cell did you update to get the resulting more "normal" UPRO/TMF with under 60% in TMF. I, too, am getting like 22% UPRO/78% TMF. (Note: I'm not implementing this strategy...yet...just trying to learn). Thank you!kerstverlichting wrote: ↑Thu Sep 10, 2020 11:05 amOK wow, I just put the thing together in two days in between work. please be careful as I didn't fully check everything and it heavily relies on perfect uncertainty's calculations (which I also didn't verify). Cool to hear folks are so happy with it btw. I only got a few k to put into this strategy myself but it's fun being part of a community to do it together with.Mickelous wrote: ↑Thu Sep 10, 2020 8:21 amYeah no joke I have almost my entire 401k and Roth IRA in this strategy.RovenSkyfall wrote: ↑Thu Sep 10, 2020 8:13 amkerstverlichting thank you so much for working at this. It is really amazing that you are bringing people a tool to help optimize their investing.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
xxx
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
Ah yes, I checked this for you, seems to be the case because of the odd mix of TQQQ/UPRO/TMF/TYD in the preview. A "normal" UPRO/TMF allocation (21 days volatility) ends up with just under 60% in TMF:nehawk87 wrote: ↑Thu Sep 10, 2020 8:31 amGreat stuff, really enjoying reading up on AAA and how to employ this strategy. I want to make sure I'm understanding this correctly.
I'm a little surprised at the AAA recommendation based on the data of 19.8% stock and 80.2% bond inverse volatility allocation compared to the typical 55/45 strategy. Is it common for AAA to lean heavier into the bond allocation? Curious what the experience has been for those who have been using AAA awhile and also want to ensure I'm interpreting this data correctly.
Seems more reasonable, right?
Still though, I advise people to double check everything and let me know if something seems amiss.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Would you be able to fit 2x gold UGL in there? I wasn't able to get it working with the steps. Too bad the 3x gold etf got shut down, unless there is another one I'm not aware of.kerstverlichting wrote: ↑Thu Sep 10, 2020 5:48 amAlright, I just updated my file (v3.0 now) to include a separate drop down to set the correlation range. This way, if you're interested in using Minimum Variance, you can set it to the max of 4.75mos/100 trading days (advised), and then set the volatility range separately (21 days advised) to get to the correct calculation of the Minimum Variance asset distribution. Note that it seems one would ideally use 6mos/126 trading days for the correlation range, but this is not possible with my file due to restrictions on Yahoo data that it uses.kerstverlichting wrote: ↑Thu Sep 10, 2020 1:27 am [...]
My sheet indeed only goes up to 100 days. But also, it uses this range (that you can choose) for both correlation and volatility. From what I understand now, I should adjust it so that the correlation and volatility ranges can be defined separately. Eg. You could set the correlation range to 100 days (4.75mos) and the volatility range to 21 days (1mo), and then it'd work as required? (except of course the correlation range still wouldn't be 6mos due to the Yahoo restriction, but at least we got fairly close)
If you would be so kind, could you maybe run a back test with 100 days of correlation data and compare it to 126 days so that we can see if there is a significant difference (and whether it's positive or negative)?
Download: http://s000.tinyupload.com/index.php?fi ... 7640950076
Preview:
@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
it looks like you can buy 3x ugld as an otc as ugldf

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 Joined: Thu Jul 23, 2020 3:15 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
The reason you guys are seeing such low UPRO/equity allocations is because of the recent volatility. The whole point of the adaptive asset allocation is that you’re rotating out of the asset with increasing volatility until it settles back down.
There’s a lot of strategies out there where you move out of stocks when the S&P breaks below a certain moving average, usually the 200 day. That movement is a proxy for high volatility. This is just a more rigorous way of doing that.
When the market moves sharply down as it has been doing the past week, the math will tell you to go heavy into bonds. This will probably reduce your drawdowns but could also limit your upside if we recover in a big way. However the idea is that volatility usually begets volatility and you’ll more likely gain by playing it safe until it decreases... probably.
There’s a lot of strategies out there where you move out of stocks when the S&P breaks below a certain moving average, usually the 200 day. That movement is a proxy for high volatility. This is just a more rigorous way of doing that.
When the market moves sharply down as it has been doing the past week, the math will tell you to go heavy into bonds. This will probably reduce your drawdowns but could also limit your upside if we recover in a big way. However the idea is that volatility usually begets volatility and you’ll more likely gain by playing it safe until it decreases... probably.