StockFetcher Forums · Filter Exchange · PORTFOLIO SELECTION AND MANAGEMENT USING RISK/REWARD RATIOS<< 1 2 3 4 5 ... 65 >>Post Follow-up
guymar
113 posts
msg #91992
Ignore guymar
5/3/2010 4:27:22 PM

I am very happy with this - the underlying formula could help to build something like this for Europe - no stockfetcher over there (yet?) any additional help greatly appreciated, to do this in Excel or whereever ... we are just dividing a number of closes over a number of periods here? Am I right?

Kevin_in_GA
4,553 posts
msg #91995
Ignore Kevin_in_GA
5/3/2010 5:22:43 PM

In essence, yes. The relative strength calculation is simply the return of the ETF over the last 20 or 63 days divided by the return for the SPY over the same time period.

sbuck143
88 posts
msg #91998
Ignore sbuck143
5/3/2010 5:43:57 PM

I like your thinking Kevin in subbing out SPY for IWM.

Here would be my uber basket selection, which I will attempt to backtest as I get the time.


FXI (China)
EWW (Mexico)
IWM (US)
LSC (leveraged commodities with much lower correlation to equities)
GLD (gold)
TLT (long term treasuries as the safe haven)


Plug in FXI and EWW in the etfreplay tester for some eye-popping results.

You'd probably want to volalitity weight in some manner given these rockets....

ciscoslaves
5 posts
msg #92002
Ignore ciscoslaves
modified
5/3/2010 6:42:31 PM

Kevin,

This shorter filter is a great idea, and I tried to analyze why.

The filter more or less tries to time the market, and signals when to go to cash. I haven't done the numbers, but it seems creating any sort of mixed fund that follows the broader market would have returned similar results. I mean most stocks have returned 100%+ since the March 2009 lows.

Your filter pretty much signaled to go to cash when the worst was upon us and prevented much of the loss. I'm wondering what the results would have been if one were to buy their preferred stocks (maybe one of the best stocks from 5 different top sectors) when the filter signaled to buy IWM or EEM.

Although I guess this idea defeats the purpose of using Risk/Reward ratios



Kevin_in_GA
4,553 posts
msg #92003
Ignore Kevin_in_GA
5/3/2010 7:04:46 PM

I like your thinking Kevin in subbing out SPY for IWM.

Here would be my uber basket selection, which I will attempt to backtest as I get the time.


FXI (China)
EWW (Mexico)
IWM (US)
LSC (leveraged commodities with much lower correlation to equities)
GLD (gold)
TLT (long term treasuries as the safe haven)
+++++++++++++++++++++++++

Here is my short list. This is designed to represent most of the typical 401k fund choices (I based this off of my own account):

US Large Cap - SPY
US Large Cap Value - VTV
US Large Cap Growth - IVE
US Small Cap - IWM
Emerging Markets - EEM (although VWO is a better ranked ETF with a lower expense ratio)
Bond Fund - BND
Stable Income - MBB or IEI
Cash Equivalent - SHY

I would then add in several non-correlated asset classes:

Commodities - GLD, DBB
Real Estate - VNQ
Agriculture - COW or MOO

just to see how these are tracking relative to the other investment classes.

Kevin

Kevin_in_GA
4,553 posts
msg #92004
Ignore Kevin_in_GA
5/3/2010 7:20:32 PM

The filter more or less tries to time the market, and signals when to go to cash. I haven't done the numbers, but it seems creating any sort of mixed fund that follows the broader market would have returned similar results. I mean most stocks have returned 100%+ since the March 2009 lows.
+++++++++

Yes, but I backtested this from Jan 2007 (posted earlier in this thread) so that it included all of the Great Recession to date. The return was almost three times that of the SPY. It is more than just holding in cash during downturns - it also is selecting ETFs that are outperforming the SPY even when it is going up as dramatically as it has over the past year.

This basic concept can be tested on etfreplay.com back to 2003 (in which it returned 504.3% as of the close today, which is more than 9x the return from buy-and-hold).

Also, why overcomplicate this? Adding in other ETFs sounds good in theory, but will require more trades and more account management, with no guarantee of higher returns.

hmsb4494
62 posts
msg #92007
Ignore hmsb4494
5/3/2010 8:39:26 PM

504.3% total return in 88 months----what is the annual compounded rate of return?

sbuck143
88 posts
msg #92009
Ignore sbuck143
5/3/2010 8:59:26 PM

Also, why overcomplicate this? Adding in other ETFs sounds good in theory, but will require more trades and more account management, with no guarantee of higher returns

*********************************************************************************************************************

Multiple ETF's that all have close correlation are really not that much of different choices. Where this system will really shine is when you have uncorrelated (dis-correlated?) choices such that there is always a good choice to be had.


I just ran some quick numbers off of the following ETF basket: IWM, EWW ,EEM, FXI, SPY, SHY, GLD, TLT, and LSC.

Starting as far back as SF would allow - Oct 8, 2008 - I bought the top 3 ETF's from that list of 9 using your filter each month, noted their performance for the month, and then re-ran the filter the next month.

The overall ROI from Oct 8, 2008 to today using this strategy was approximately 84%, compared to SPY's ~ 33% over that same time frame.

The IWM/EEM/SHY combo returned 72% but that number represents Jan 2008 to present, so its not apples to apples, but the "top 3" strategy does have a better ROI in a shorter period, and furthermore the drawdowns were greatly reduced by the virtue of spreading out the risk amongst 3 selections instead of "all or none".

Kevin_in_GA
4,553 posts
msg #92010
Ignore Kevin_in_GA
5/3/2010 9:01:52 PM

2.07% per month, 29.32% annual.

Kevin_in_GA
4,553 posts
msg #92011
Ignore Kevin_in_GA
5/3/2010 9:07:05 PM

Stockfetcher will allow you to go further back - try typing in 800 as the offset and see ...

Also, what you have done only further validates this approach. It is a simple and effective portfolio management tool. The use of ETFs lets you access lots of options - just be sure that the ETF is highly liquid so that you can sell it as needed without giving up to much to the spread.

StockFetcher Forums · Filter Exchange · PORTFOLIO SELECTION AND MANAGEMENT USING RISK/REWARD RATIOS<< 1 2 3 4 5 ... 65 >>Post Follow-up

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