Thursday, March 24, 2016

Model Performance - March 23, 2016

First of all, I would like to apologize for not being active on the blog over the past several months. I just passed a certification exam for which I had been studying. Now that I have some time, my goals are to share market / economic analysis on a regular basis.

Markets have rallied over the past month with a vengeance. On one hand this rally brought SP500 and DJIA back into green and improved sentiment, it also masked underlying economic uncertainties.

On Feb 11th, we knew a rally was coming based on Elliott Wave analysis. However, the problem with counter trend rallies is that there is no clear end point. This is exactly what has happened with the market over the past few weeks. This rally was very sharp, similar to rally in October 2015.

Since we tried to build-in many risk-management, trend following and asset allocation characteristics in the algorithm. As a result, the model portfolio did not undergo any significant changes during the rally. And even without changes, overall portfolio performance remained stable. 

As shown below, the portfolio is up ~5% (YTD) while SP500 is up only 0.28% during the same period. This result was obtained with half the Beta risk, as one would take if you had invested in SP500. In other words, risk adjusted returns has beaten the market by over 10%, during a market which remained flat over time with sharp market moves.

If the primary trends resumes, portfolio is well positioned to benefit from the price movement with strict risk-management features.