Shorting the market... my mind has been blown

[ochotona]

If you use SH S&P500 SHORT ETF, in a Dual Momentum pairing with the S&P500 SPY LONG ETF, and just swap back and forth between the two based on the simple DM trading rules, you have better CAGR, Sharpe, and MaxDD than buy-and-hold SHY alone! That's just amazing to me, and completely surprising. Somehow, part of me expected strange and scary results from even laying a finger on SH, but no, quite benign if used properly.

2008-2015

SPY B&H: CAGR 5.72%, Sharpe 0.41, MaxDD -48.23%

SPY-SH Dual Momentum: CAGR 7.93%, Sharpe 0.55, MaxDD -31.98%

[ochotona]

BEAR MARKET WITCH'S BREW

TLT, IAU, Cash, and SH ! The Evil Twin PP !

[var]

If you use SH S&P500 SHORT ETF, in a Dual Momentum pairing with the S&P500 SPY LONG ETF, and just swap back and forth between the two based on the simple DM trading rules, you have better CAGR, Sharpe, and MaxDD than buy-and-hold SHY alone! That's just amazing to me, and completely surprising. Somehow, part of me expected strange and scary results from even laying a finger on SH, but no, quite benign if used properly.

2008-2015

SPY B&H: CAGR 5.72%, Sharpe 0.41, MaxDD -48.23%

SPY-SH Dual Momentum: CAGR 7.93%, Sharpe 0.55, MaxDD -31.98%

och,

how does the DM trading strategy work?

[ochotona]

Dual Momentum is pretty simple. Let's say you have a list of assets, has to be at least two. You go long in the asset if and only if it is best performing of the list, and that performance is better than the risk-free rate (90 day T-Bills). "Performance" is measured by totla 1-year return. If nothing on the list meets those requirements, go to cash.

So I just found out... long gold GLD and short gold DGZ, when paired up in a Dual Momentum pair, also outperform buy and hold of either once since 2010. I am testing at PortfolioVisualizer.com.

This is weirder than weird, I must say. CAGR 8.64% Sharpe .57. Wow. Incredible.

I wonder if we could make a matter-antimatter PP with Gold and Inverse Gold, Stocks and Inverse Stocks, Bonds and Inverse Bonds, and just pick the top performing of the three. Let me find an inverse bond ETF.

[ochotona]

DGZ, GLD, SH, SPY, TLT, and TBF.
Long and short gold, stocks, long Treasuries

Dual Momentum... hold the top three assets out of the six

Jan 1 2011-Jan 31 2016

CAGR 6.94%, MaxDD -7.01, Sharpe Ratio 0.88

Regular PP:

CAGR 3.95%, MaxDD -2.98, Sharpe Ratio 0.66

It really makes you wonder.

[stuper1]

How frequently are you checking and trading?  Weekly?  Monthly?  Quarterly?  Yearly?

[ochotona]

I am not trading these just research

I theoretically trade once a month

[Kbg]

What does a completely inverted PP do?

[ochotona]

Safely surely loses money?

[ochotona]

Funny thing... 40% GRZZX short mutual fund and 60% Total Bond ETF BND is only -5.4% CAGR if you hold this weird portfolio during 2009-2015... which is the worst possible period to have been short the stock market.