An example of diversification effect on a portfolio of 1hr strategies

• 10/01/2017 at 1:26 PM #47922
  Francesco78

  Dear all, I thought would have been nice and useful to show some results that I obtained by building a portfolio of strategies on several underlying.
  On the first chart you can see individual equity lines corresponding to different strategy class (trend following, breakout, mean reverting, candle pattern). In the second chart instead you can see the combined equity line.
  The idea is to show how powerful is the effect of diversification and how important it is in my opinion to have many imperfect but accetable strategies rather than a few which you might think are “perfect”. In this way you achieve 2 results:
  1) reductions of drawdown/much better sharpe ratio
  2) reduction of overfitting risk.

  Every constructive criticism will be very much welcome.
  Enjoy the rest of the weekend

  PS: the strategies are live since mid July.

  Total of 14 users thanked author for this post. Here are last 10 listed.

  eckaw, raphaelopilski, GraHal, Juan Salas, jebus89, Ste, AsgerK, manel, Nicolas

  

  Francesco78

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  10/01/2017 at 1:59 PM #47928
  reb

  Hi Francesco

  Really impressive.

  As you mention, diversification is the key to reduce risks :

  different uncorrelate underlyings  and strat which work in a different configuration from the others

  1 user thanked author for this post.

  Francesco78

  

  reb

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  10/01/2017 at 10:43 PM #47952
  manel

  Thanks for your post Francesco. I think it’s a very important point to make and one that more inexperienced members will find very useful. There is no perfect strategy to be found but rather the aim should be to build a portfolio of strategies that suit each user here. This will help mitigate bad periods in some with better performances in others – thereby reducing overall drawdown and more importantly overall volatility of returns.

  As mentioned above choosing uncorrelated strategies is also key, as it might be easy to think just because you have 10 strategies running that you are diversified but if they are all in one sector (eg equity indices) and based on one narrow theme (eg swing or pathfinder etc – nothing against these strategies btw just an eg) then because of their relatively high correlation you are less diversified than you realise.

  1 user thanked author for this post.

  Francesco78

  

  manel

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  04/01/2018 at 1:20 AM #66885
  CKW

  Hi Francesco78,

  I have a question regarding your diversification portfolio. I am using PRT by IG, indexes are usually required much higher margin compared to forex (I am not sure for non- IG user). In this case, do you mix them under single portfolio ?

  The problem i have is whenever losing trade occur on indexes, it need takes a lot of mini wining trade to fill to loses. How do you balance them? (Of course, I prefer not to increase contract in forex as that will be too much for me)

  thanks for your advice.

  Br

   

  

  CKW

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  04/01/2018 at 3:39 AM #66894
  CKW

  Hi Francesco78,

  Another question. I noticed most of your strategy Gain/Loss ratio are usually between 1-2 only (not fancy result like > 3 above) but it seems still progressing well. In your opnion, what’s minimum perf “must” have for a qualified strategy ?

  Br

  

  CKW

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  04/01/2018 at 6:59 PM #66914
  Francesco78

  @CKW

  I am not sure how to reply to your question, it all depends on the shape of the equity curve, I usually have perf between 1 and 2 and percentage of trade profitable between 40 and 70.

  

  Francesco78

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  04/03/2018 at 2:37 AM #66969
  CKW

  Hi Francesco78,

  Thanks for reply. For my first question in short, you have the same size for index and forex in your portfolio ?

  Br

  

  CKW

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  04/03/2018 at 7:10 AM #66975
  raphaelopilski

  Great job!!!! Now, it would be nice to give us all the strategies here 😉

  

  raphaelopilski

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  08/25/2021 at 9:07 PM #176242
  phanz

  Hi Francesco,

  There are:

  • Diversification between asset classes
  • Diversification within the same asset class
  • Diversification across timeframes
  • Diversification across different strategies

  What is your thought process when deciding what to diversify?  What kind of study did you make in advance, eg test for correlation etc etc?

  

  phanz

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  08/25/2021 at 9:46 PM #176247
  Francesco78

  Hi, thank you for your question,

  I am not very often in this forum anymore, please if you like, connect with me on linkedin where I post my research.

  Thanks!

  

  Francesco78

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