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  • The Hedged Aggressive Portfolio 3 comments
    Apr 7, 2013 2:46 PM

    The Hedged Aggressive Portfolio

    This is an extension and modification of the basic portfolio described elsewhere ( ).

    The basket has been modified to include a leveraged and an inverse ETF, and consists of


    Components of the basket are selected and invested in at the beginning of every quarter according to the method described in detail in the earlier post. In this case four ETFs were selected in each of the tranches.

    As MVV has been available only since 2007, we have used a synthetic version of the leveraged ETF. During 2007-2013, the back testing with the actual ETF yields a CAGR which is about 1.5% lower than with the synthetic version during the same period, but the other essential details of the results are similar.

    Here are the detailed results for 2003:2013

    CAGR 17.3%

    Sharpe Ratio 1.14

    Kelly Fraction .47

    Maximum Monthly Drawdown 17.0%

    Monthly One Factor Alpha .96%

    Monthly One Factor Beta .34

    Monthly One Factor R^2 .18 (The low R^2 implies that alpha and beta are not meaningful.)

    The equity curve, the Manhattan asset allocation diagram and the basic asset allocation diagram are shown below. In order to display the ability (or lack thereof) of the strategy to respond to the market changes, the second figure also depicts the normalized quarterly price history of SPY in grey. (Note that MVV is labeled as $MVV in the figures to signify its synthetic nature.)

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    Disclosure: I am long IJS, AGG, LQD.

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Comments (3)
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  • Note that you can use UMPIX, the mutual fund equivalent of MVV, to go back to March 2000 with real data.
    9 Apr 2013, 11:45 AM Reply Like
  • Author’s reply » thank you. With UMPIX the results for 2003-2013 are slightly inferior, as expected, mirroring results of the comparison between MVV and synthetic MVV for 2007-2013 as noted above. The main differences are in the CAGR (down 1.4% ) and Sharpe ( down .09).


    CAGR 15.9%


    Sharpe Ratio 1.05


    Kelly Fraction .45


    Maximum Monthly Drawdown 17.0%


    Monthly One Factor Alpha .86%


    Monthly One Factor Beta .32


    Monthly One Factor R^2 .17
    9 Apr 2013, 12:48 PM Reply Like
  • Author’s reply » YTD 7/22/2013


    21 Jul 2013, 09:51 PM Reply Like
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