This is really nice - thanks for sharing.

Unfortunately it is the sort of algo that would do great in the contest, but totally fail in real life because the interest paid on the 2x leverage would kill any returns made.

I tried to use leveraged ETFs to see if anything can be done to reduce actual leverage, but was not successful.

Nice algo - thanks for sharing.

I use 2x leverage to target equity-like returns.

Just wondering if there is any reason to borrow $1000000 and put 1,302,882.84 into cash equivalent SHY?

2005-01-25
GLD $42.24 7097 $299,777.28
SHY $81.42 16002 $1,302,882.84
SPY $116.87 1418 $165,721.66
TLT $90.51 2460 $222,654.60
Cash ($997,983.15)

Try AGG,BIV,IEF instead of SHY .
That may help you beat the market without leverage and borrowing cost.

Mohammad, here is an example with no leverage. In this version I show how you can cap weights in the optimization problem. I cap SHY at 10% and remove the leverage.

Vladimir, well shy is not exactly cash, it has a longer duration. The goal was to capture the "low volatility anomaly."

Georges,

Margin rate is several times higher then total return for SHY(0.99% for last year from now).
It is more reasonable to remove it.

SPY TLT GLD SHY
leverage = 1.00

Total Returns
159.4%
Benchmark Returns
111.1%
Alpha
0.11
Beta
0.13
Sharpe
1.51
Sortino
2.22
Information Ratio
0.53
Volatility
0.08
Max Drawdown
14.8%

SPY TLT GLD
leverage = 0.97

Total Returns
161%
Benchmark Returns
111.1%
Alpha
0.11
Beta
0.13
Sharpe
1.51
Sortino
2.22
Information Ratio
0.54
Volatility
0.08
Max Drawdown
15%

Here I further expand on the concept of "risk budgeting" but cutting weights if an asset in the portfolio runs too hot or too cold. I think it does a nice job of managing the risk of the total portfolio while keeping leverage well under 1 at some points.

Sharpe Ratio = 2
Max DD < 11%

Guys, great posts - so the question remains - should you spend more time on "algo development" or should you spend time on marketing your black box hedge fund? I am only half kidding. Check my post called "The Simplest Algorithm", it contains a similar "algo" ;)

@Georges - the new algo is good, but it does lose that 'holy grail' smooth upward incline ;)

My critique of it would be the down years in 2013 and 2015.
2013 was an anomaly year in many algo terms, and this algo fails to remain profitable in it.
2015 was a down year, and the algo again fails to remain profitable.

Although after re-examining the original algo, that had losses in these years too, but they were much smaller losses.

Hey thanks a lot guys! your suggestions have led to some great improvements

[Beginner Question Alert]

Hi Georges, thank you so much for sharing this! Do you see a way of substituting the different asset classes with global stocks? i.e. creating a global stock portfolio that rebalances on risk parity weights. I learned that symbol/sid don't take in tickers for global stocks, is there a way to achieve the same thing through pipeline?