Anyone know why this algo is leveraging up to 1.67x when the limit is specified at 1.45x? I thought the limiting method used in this algo (x/n where n = number of securities and x = your leveraging limit [1.45]) and many others was reliable but maybe something else is wrong. Thanks in advance for any ideas.
It looks like the leverage varying is not a bug, but a result of fluctuations in your account value. If you rebalance to 145% of your account value and the price of the asset you are holding goes down, then you will have more than 145% of your account invested so leverage goes up.
In general if you are more than 100% invested, then declines in your account value will cause leverage to go up, and if you are less than 100% invested, declines in your account value will cause your leverage to decrease. If you happen to be exactly 100% invested, then your leverage will always be 1x regardless of fluctuations in your account value. Hope this answers your question.
David
Thanks David, but I still do not understand why a decline in account value would cause leverage to go up when you are more than 100% invested. To me it seems like regardless of your leverage when your account value goes down you would have less leverage and vice-versa.
Also, regarding this specific algo, if in the future I decide to enter it into the Quantopian Open, I will have to keep the leverage below 3x. I am wondering how I can make sure the leverage never goes above 3x (or for this half of the algo, 1.45x) so I don't get disqualified.
For illustration:
Your account has $100 to start.
You buy $200 of stock and have $100 of equity, so your leverage is 2.0.
That stock loses 25%, so your $200 is now $150. Note that that $50 loss comes straight off your equity though.
Now, you own $150 of stock but only have $50 of equity, so your leverage is 3.0.
Cheers,
Simon.
I thought leverage above 1 was an indication of margin/borrowing, now I guess that's wrong. Looks like it is figured like this:
prtflio = context.portfolio.portfolio_value
lvrg = (prtflio - context.portfolio.cash) / prtflio Here's some code I've been messing around with. Clone/run and mouse over the custom chart, zooming in on, say, 2013, and with a couple million borrowed the leverage can be either high or even negative depending on the portfolio value. Literally scratching my head.
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