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Portfolio123 » List all forums » Forum: Simulations and Portfolios » Thread: Portfolio Diversification - Value vs. Growth, Tech vs Non Tech, Large vs Small |
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crakes
Advanced Member
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Today's market drop begs the question: How can one diversify to get through these rough patches. Today, the markets concluded a week where only the Nasdaq composite ended in positive territory for the week. My ports track pretty much to the Russell 2000 and so fared so so. I've read O'Shaugnessey and he likes to have value and growth strategies to smooth out volatilty. What has been the community experience? > Are there themes that balance out? > Are there formulas within ports that do the trick? (I'm thinking of the formula - sorry can't recall the name - that requires new equity to be uncorrelated to the port being added too...) Curious what are your hypotheses, and better yet, real life experiences with Ports! Thanks, Carl |
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crakes
Advanced Member
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Well, I think I'll reply to my own post with the results from testing one of my hypotheses. Simple Hypothesis: A long short fund, where I buy the top ranked equities of a simulation and sell short the bottom ranked equities, should give me a low volatility combined portfolio. Test: I took two value ports, ran the "opposites", and found that these short-ports performed worse than my benchmark, the Russell 2000. I made sure to set stock price at 5 or greater so the stock are short-able. Also, the turnover is at less than 250 to ensure commissions don't throw off beneficial underperformance. I eyeballed the charts of the long & short sims, and looks good. Next I need to actual compare the weekly results to see what the returns would be. What I like about a long short approach is that I get protection during negative semicorrelation - basically, stocks are all correlated when they go down - and the short-port seems to lose money fast than the long port, and to regain it more slowly. But there must be some experience out their with long-only portfolio construction, or portfolio combo's, that help ride out the bumps. Curious to find out what folks have learned on the long only side, and any actual experiences on the long short side. I see some threads discussing pairs and shorting, but thought I would restart here to see if revisiting this topic brought new thoughts. Thanks! |
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Portfolio Diversification - Value vs. Growth, Tech vs Non Tech, Large vs Small
