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The meeting begins at 19:00 PM
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Wednesday July 8th 2015
“A Review of Various Risk Measures”
Norman Booth Scott Juds
The meeting begins at 19:00 PM Wednesday July 8 th 2015 A Review of - - PowerPoint PPT Presentation
The meeting begins at 19:00 PM Wednesday July 8 th 2015 A Review of - - PowerPoint PPT Presentation
1 The meeting begins at 19:00 PM Wednesday July 8 th 2015 A Review of Various Risk Measures Norman Booth Dont Put Coal in Your Rocket Engine Scott Juds 2 Wednesday July 8 th 2015 But First A Short Review of
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Wednesday July 8th 2015
But First…
A Short Review of SectorSurfer’s Principles
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Quick Review of Basics
Trends Exist in Market Data
Statistically Proven By Edger Peters Live Portfolio Study in The Economist Peer Reviewed Academic Paper by Jegadeesh and Titman
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Quick Review of Basics
Trends are Important and Messy
Trends Reveal the Road Ahead
Which Trend is Your Friend?
Period – Week? Month? Quarter? Year? Algorithm – MACD? SMA? EMA? DEMA?
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Quick Review of Basics
True Sector Rotation
True Sector Rotation
Serial Diversification – Own One at a Time
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Quick Review of Basics
Forward-Walk Progressive-Tuning
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Now Use Next 125 Days
Tuned Only With Past Data
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Layered Diversification
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Wednesday July 8th 2015
“A Review of Various Risk Measures”
Norman Booth
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Sharpe Ratio
Sharpe Ratio = (Fund Average Return - Money Market Return) / (Fund Standard Deviation)
??
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Sortino Ratio
Sortino Ratio = (Fund Average Return - Money Market Return) / (Downside Deviation)
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Probability of Loss
Risk is like Sortino Ratio – Average of Downside Variation
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Quarterly Return Probability Distribution
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Max Drawdown
Note: The primary shortcoming of the Max Drawdown measurement is that there is no consideration for the duration of a decline or the duration of the prior high - it could be days or years.
(1) the Absolute maximum decline in value from a prior high that occurred anytime, (2) the maximum Realized decline in value from a prior high measured only on Strategy trading dates when gains or losses of a trade are actually realized. (3) the maximum Quarterly Realized decline in a portfolio's value from a prior high measured only from calendar quarter to quarter.
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What is the Max Drawdown?
0.1 1 10 500 1000 1500 2000 2500
Relative Price Market Days
Max Drawdown Analysis
Up Spike Down Spike Oscillator Drag Queen
It’s 33% for All of Them
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New Risk Chart Proposal
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Wednesday July 8th 2015
Scott Juds
“Don’t Put Coal in Your Rocket Engine”
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Don’t Put Coal in Your Rocket Engine
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Strategies Have An Engine
Noise Filtered, Differential,
Trend Following Engine
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What Best Fuels Our Engine?
- 1. At Least One Candidate is Always Having a Power Stroke.
- 2. Candidates Can Reliably Pass Leadership To One Another.
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Why do I Want Forward-Walk?
Turn On FWPT, Discover Flaw. Eliminate Culprit, Fix the Problem.
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Does The Chaos Affect the Fastest Route?
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You Can Eliminate Chronically Chaotic Roads
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SPDR Sectors – All 9
Trouble Walking Forward
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Differential Noise of
Sector Funds and Typical 401k Funds
FSELX FSDCX FSPHX FSHCX FDLSX FBMPX FSAVX FSVLX FSLBX FSRPX FRESX FSAGX AVE--
- Std. Dev. of Daily Return (Noise)
2.00% 1.69% 1.13% 1.29% 1.18% 1.31% 1.43% 1.45% 1.62% 1.30% 1.52% 1.92% 1.14% Daily Corell. of Return to Ave.Return 0.779 0.827 0.761 0.700 0.901 0.884 0.860 0.805 0.891 0.839 0.731 0.349 1.000
- Std. Deviation of Differential Noise
1.32% 0.99% 0.78% 0.95% 0.52% 0.61% 0.74% 0.86% 0.79% 0.71% 1.04% 1.86% 0.00% Differential Noise Reduction 34% 42% 30% 26% 56% 53% 49% 41% 51% 45% 32% 3% 100% FMAGX FCNTX FBALX FBGRX FDGFX FDVLX FEQIX FWWFX FRESX CRBI- FBNDX FSLXX SP-DA
- Std. Dev. of Daily Return (Noise)
1.20% 0.98% 0.68% 1.19% 1.14% 1.16% 1.10% 1.01% 1.52% 0.74% 0.27% 0.01% 1.13% Daily Corell. of Return to S&P Return 0.965 0.923 0.931 0.964 0.918 0.899 0.952 0.849 0.641 0.178
- 0.051
0.005 1.000
- Std. Deviation of Differential Noise
0.32% 0.44% 0.55% 0.32% 0.46% 0.51% 0.35% 0.60% 1.18% 1.24% 1.17% 1.13% 0.00% Differential Noise Reduction 73% 55% 19% 73% 60% 56% 68% 41% 23%
- 66%
- 336%
- 11178%
100%
Differential Noise - Sector Funds Differential Noise - Typical 401k Funds
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Strategy Performance with Sinusoidal Funds
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Strategy Performance with Square Wave & Saw Tooth Funds
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Why Stock Strategy Died in 2014
A Financial Advisor
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Stocks Selected in Hindsight for Having had Long Trends.
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Why Stock Strategy Died in 2014
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Highest of the Trend Signals
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This is a disturbing strategy. From 2010 SectorSurfer seems to be doing everything wrong.... (email from a Power User)
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Stocks Selected in Hindsight for Having had Long Trends.
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This is a disturbing strategy. From 2010 SectorSurfer seems to be doing everything wrong.... (email from a Power User)
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Better Ways to Select Stocks
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- Individual Performance
- Skills Needed by Team
- Plays Well With Others
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Trend Quality & 3Yr Excess Returns Examples
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Try Selecting Stocks by Sector?
Why Select Stocks Within a Sector?
They May Have Common Mode Noise, and Leadership Transfer May be More Reliable.
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Biotech Selection by Market Cap
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Biotechnology - Selected by Market Cap
SPY and IEF included as Backstop funds.
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Healthcare Plans - Selected by Market Cap
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Medical Equipment - Selected by Market Cap
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Medical Supplies - Selected by Market Cap
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Healthcare Sectors Portfolio
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TipTop Sectors
Which ETF in a Sector is Best?
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TipTop Sectors Portfolio
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