Sector ETF with OLMAR

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Sector ETF with OLMAR

posted May 28, 2016

Hi everyone,

I've been recently playing around with applying the OLMAR algorithm, pretty much well known in the quantopian community by now. As a first approach I thought, why not try to apply it to the market as a whole and see how it fares with the 9 ETFs that represent the major sectors. Any thoughts or ideas to improve this algo? Seems to have some promise but sometimes falls flat.

Any experienced users with OLMAR out there want to chime in? Feel free to clone if you want to use it also. If anyone wants to collaborate also, feel free to invite.

1 response

Hi Richard,

Looks like my hacked together code. You might have a look at https://www.quantopian.com/posts/comparing-olps-algorithms-olmar-up-et-al-dot-on-etfs and contact the author, Paul Perry (https://www.quantopian.com/users/5312f7e2efc731bbf20000fe) to see if he has any insights.

Up front, you may want to consider your objective. Are you trying to "beat" SPY? See if you can improve the performance with mean reversion, without adding risk, and including transaction costs? Or something else?

You could also consider how to incorporate the relative risk. For example, see https://www.quantopian.com/posts/equal-risk-contribution-s-and-p-sector-portfolio-erc.

One suggestion is to compute the optimum portfolio weights every day (or every minute, if you want). Store the weights versus time, smooth them, and periodically rebalance (e.g. weekly/monthly/quarterly) using the smoothed weighting.

Also, for development, I recommend starting with a gross leverage of 1.0. Also, always run the backtest starting as far back as possible. If you go the equal-weight route, maybe use RSP as your benchmark, which would allow you to go back to 4/24/03?

Grant

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.