Best Six Months Strategy

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ochotona
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Best Six Months Strategy

Post by ochotona » Fri Mar 15, 2019 2:29 pm

I have a very handy new copy of the Stock Trader's Almanac 2019, by Hirsch. It's fun to have on my desk, it hearkens back to my 1990s Franklin Planner days, before I got a Handspring PalmOS device.

The Almanac discusses the advantages of being in bonds during May-October every year, the "Sell in May, go away" strategy.

Has anyone here ever done that?
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ochotona
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Re: Best Six Months Strategy

Post by ochotona » Fri Mar 15, 2019 5:15 pm

I think I found something really very interesting.

If you apply the Best Six Months strategy to the GEM portfolio, you lose about 0.5% CAGR since 1987, but your Max Drawdown goes from -30% to -14% ! Your Sharpe ratio goes up from 0.71 to 0.92 (the HBPP is 0.5). The US Market correlation does down to 0.49, even less than HBPP which is 0.58.

The deepest drawdown underwater period shortens by 3 months.

So you give up a little bit of return, in exchange for a whole lot less risk.

Comparing GEM 12 Best Six Moths to the bare metal S&P 500, the GEM 12 Best Six Months gets you 80 bps more CAGR since 1987, and 1/3 the drawdown, 1/2 the correlation, almost double the Sharpe Ratio.

And it's easy to use. Got a calendar? Sell on the last trading day in April. Buy on the first trading day in November. Overlay on whatever your strategy is.

See for yourself here!
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