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Portfolio123 » List all forums » Forum: Simulations and Portfolios » Thread: Controlling Risk and MDD |
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dallen131
Advanced Member
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If you have a low tolerance for high MDD, you can add absolute measures to buy and sell rules to control the % of money invested during market selloffs. For example if a buy rule has Close(0) > SMA(30), then if most stocks are selling off and are below their ma's then you would not buy these stocks regardless of their relative ranks. This helps control % invested vs time and limits the MDD. To help limit sector exposure, add a buy rule like SecWeight < 30. On May 10th I posted about a problem trying to do this called SIM ERRORS. I gave examples of the asset allocation exceeding the SecWeight limits. At the time I didn't realize this only happens if your not 100% invested. Currently I have a portfolio thats 62 % invested but 43% of that is in the energy sector even with the buy rule SecWeight < 30. So I'm not really limiting my sector exposure like I wanted to. If others on this board have concerns about controlling Risk and MDD, please comment. Marco and I discussed this, and are not sure what to do. Their may not be a good solution for sims, but for portfolios maybe when you rebal, if the buy sell list of stocks had the Industry and sector info and It shows the % of the LARGEST Industry and sector if you commit, then at rebal time you could reject certain buys if it resulted in too much industry or sector exposure. Dan |
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