Clustering is something I have not tested yet, I prefer to post only about algos I tested and run in real time. P.S I think that, as this point in the discussion, most people following it are lost  :)... But the principles of risk management I posted above should be universal enough and simple enoug...

MG: There is no such thing as "optimal weights". And no such thing as historical correlations or historical volatility. These are variables oscillating in a wide range. So, looking at an average is like looking at a guy with his head in the oven and his feet on ice and saying that he shoul...

Nice  :) .  Looking at the charts, risk management made a big difference in 1981-82, 2000-01 and 2008. The drawdown spike in late 2011 on the first chart bothers me.  Any idea what that could be from? From this - the waterfall drop in GLD: http://imageshack.us/a/img707/5701/2011yo.png I would look ...

Nice  .  Looking at the charts, risk management made a big difference in 1981-82, 2000-01 and 2008.

MG: I am not clear how you scored them, but this one looks the best: GSD Weight 60d, 10% Target GSD 60d, AbsMoMo 11/02/70  8.45%  -8.55%  Based on your abreviations, it looks like the approach suggested here: To synthesize what I already said in this thread, there are 2 forms of risk management to b...

MG: I am not sure what you mean when you show "the optimal weights"? It was for all of the data, i.e. back to 1973.  I'm not sure why you think short-term matters when the AWP/PP is designed around long-term economically non-correlated environments?  The Risk Parity method tries to create...

The difference between standard deviation and drawdown minimization with MinCorr is interesting.  The optimal weights is: Stocks 13.98% TBonds 7.27% Gold 2.03% TNotes 76.72% ...for 7.20% CAR and -5.10% MaxDD.  It can be levered by 68% to reach -10% MaxDD. Without the TNotes, it is: Stocks: 60.86% T...

iwealth: Indeed. This is what the paper uses for absolute momentum. If you try to visualize what you described, you get a trend down which looks like this: http://imageshack.us/a/img197/6785/201304102352.png And you can contain your risk by switching to TBills for this asset class until the trend re...

I use this: http://www.fundmanagersoftware.com/demo.html It separates your brokerage account into virtual portfolios, like PP and VP and tracks each portfolio. It downloads the transactions from your broker and historical asset prices from yahoo to show you each strategy performance as graph & r...

What are you using to generate covariance or correlation matrxies in AmiBroker?  The RMath plugin is too outdated to work with SIT. I am not using any plugin. I use the Correlation() and StDev() functions in AB. To create a 2D matrix in AB where each element is a time series array, I use a naming c...

Nothing special.  Just 6-month ROC and taking the top 2 out of 3. So, you use relative momentum. I think you could get better results using a simple absolute momentum rule => i.e compare N months ROC of each asset class with TBills and stay in TBills if the asset class ROC is smaller. N =6 - 12 mon...

The big problem i have with the volatility approach is that it is not possible to know the volatility of the assets in the future. (even not tomorrow`s volatility) So you can only look back. But the more you are trying to find the best portfolio for risk/reward in history, what you are really doing...

Here's the results from the next batch of testing: Annual Rebalancing (6/1974+) Equal Weight, 10% SD Target 7.45% -20.28% Equal Weight, 10% MaxDD Target 6.69% -10.70% Volatility Weight ST, 10% SD Target 7.14% -12.19% Volatility Weight ST, 10% MaxDD Target 6.60% -7.75% Volatility Weight ST, 1% Daily...

3. Compare Sigma(P) with your self imposed TargetSigma. If Sigma(P) > TargetSigma, reduce the portfolio by reducing all weights proportionally based on  the Target Sigma/Sigma(P) ratio. This determines the size of your cash component. The weakness of this approach seems to be that it is highly depe...

1.  Risk Moderation  achievable by :             a.    Using a risk parity allocation formula based on volatility weights             b.    Managing the whole portfolio volatility to a target. How does one align the whole portfolio to a target after scaling each asset's volatility to a 1% daily tar...

Been doing backtesting on different weighting schemes for the PP.  Here are the results so far: Annual Rebalancing (6/1974+) Equal Weight 8.60% CAR -29.84% MaxDD Volatility Weight (1%) 9.08% CAR -26.00% MaxDD Equal Weight (w/Cash) 8.08% CAR -24.32% MaxDD Momo, Equal Weight 9.10% CAR -24.03% MaxDD M...

I do not see a risk problem associated with fixed income exposure when the long bond is in a bear market, in the context of an AAA system, like the one described in the paper, which uses momentum for relative strength ranking - with monthly rebalancing. Do you? No.  The key seems to be using a shor...

So excluding TA and momentum, what I've read so far seems to point to using an adaptive risk parity at both the asset and portfolio level, but also taking asset correlation into account over the short-term, is the best way to go.  In other words, you can just run a mean-variance optimization on the...

melveyr wrote: PRPFX is not a good proxy for the 25 x 4 portfolio. Max drawdown for the PP in 2008 was around 11.9%. If you go back a little bit farther looking at 2007-2008 than the max drawdown was 14.9%.

Was that end of day or end of month? PRPFX MaxDD EOM was -19% vs -27% EOD

I don't think that PRPFX is a good proxy for the PP anymore, and it really showed in 2008. It's too overweight on inflation-linked assets and didn't have enough long treasuries to prevent that brutal loss. And its Swiss Francs are wasted space. Do you have the PP MaxDD in 2008 and the CAGR for 1995...

The risk of the PP is sensitive to the rebalancing date.  To wit: 5/1/73: -25.25% MaxDD 6/1/73: -24.27% MaxDD 7/1/73: -24.17% MaxDD 8/1/73: -24.17% MaxDD 9/1/73: -22.96% MaxDD 10/1/73: -22.33% MaxDD 11/1/73: -21.29% MaxDD 12/1/73: -20.78% MaxDD 1/1/74: -17.94% MaxDD 2/1/74: -20.07% MaxDD 3/1/74: -2...

Stephan: I have to be very skeptical of a "depression gauge". It is easy to define one looking back and it is easy to put together a portfolio that does well for that period. The challenge for any one is to  define clearly and measurably one that defines that period using only data availa...

Are you deducting commissions and taxes to account for the increased turnover? No, I don't. Taxes may affect AWP CAGR, indeed, as the portfolio is heavy with income generators. Comissions are a problem only if you have a small account. About your backtests: First off, I am glad to meet another AB u...

Interesting.  What is responsible for the lesser max drawdown of the AWP vs PP in 2008?  Your tactical allocation or the asset composition? Actually both. In their letters, Bridgewater describes their safeguard mechanism for protecting their investors in a depressionary environment. This is an envi...

Would you mind sharing what asset classes were used and the weighting criteria? As per our discussion here, illustrated by MG's 4 quadrants diagram: stocks,HY, emerging market bonds, real estate, commodities, gold, LT IL bonds, T-Bonds, Tbills. As for the weighting, I mentioned the methods here in ...