I have created a simulation that uses a constant 50% bond hedge. It seems to work ok in simulation (I think). The problem is that when I convert it to a portfolio that the port only buys ~10% of the IEF hedge. I tried changing some of the settings for Hedge Tolerance and Position Tolerance (I am not sure what these two do honestly) but it did not fix the problem.
https://www.portfolio123.com/port_summary.jsp?portid=1351724
Any ideas?
thank you.
Also,
Can anyone explain what the simulator is doing with you select % of current holdings versus % of total equity? I get different results. I don’t know what it is doing:
David, I think you just need to activate use margin in the main page.
Thanks but I think I was using the hedging function in the stock simulator as it was not intended to be used.
I was trying to create a port that was a constant 50% stock and 50% bond hedge. I did not want to use any margin - I just wanted to take my starting capital and split 50/50 between stock and bonds then for it to automatically rebalance.
I figured out it works as a live Book using IEF and my stock port but it does not seem to work as a live stock port (even though the simulation ran fine using just True in the Hedge function Buy rule and no sell rule) as a stock simulator initiated design. Maybe there are some other settings I should fiddle with but I think P123 would just tell me to use a Book. I simulated it in a Book and it seemed to convert to a live port ok.
I see what you mean now, I would do as you did, create two sims, one with the strategy, the other one with 100% IEF. and then create a book with 50/50 of each if that works.
Hi David, I have several ports with constant hedging and they work as expected and they’re setup as yours appears to be - actually I use False as the only hedge sell rule, but I don’t think that makes a difference.
So is your current port holding 50% equity + 10% IEF?
Walter
Guys, I think it does work.
I went back and looked at the simulation port transactions starting from the beginning and it looks like it works its way slowly into the hedge. See the screen shot below. So I was seeing only the first buy when the port was being created and it was a small amount. I guess that over time it will be added to from cash. So maybe it does work too.
I built a book with the same holdings and compared the results over the same timeframes (3 different timeframes) and the results matched up pretty well.
Have you been using it in a live port and if so, is that the way the hedge purchases have been working? I am going to play around with this further.
Mahalo.
Dave,
It is working correctly, but in the first purchase on 02/22/99 the Port buys 251 shares of DAN, it then sells 126 shares of DAN, and buys IEF with the proceeds, all on the same date. So it ends up on 02/22/99 with 50% DAN and 50% IEF. It obviously performs the buy rules first, and then the hedge module.
Hi Denny, yes, right. Interesting capability and a little easier to use than a book for this function.
Looks a bit wonkie on startup. My sims tend to go fully invested immediately making it easier to follow. The first panel of Statistics->Charts should show the hedge hovering around the 50% mark (scale on right). If margin is disabled and you’re always full invested, IEF should then be half your holdings. Looking at the weights of the current holds should show the same.
Walter
