Thursday, March 14, 2013

T2 FX portfolio..3 Views...3.14.13

As promised yesterday, here are 3 view of the FX with the full mix including the commodity outliers, one with the commodity outliers removed and the final with SPY removed.  Based on these three views of a top 2 sort we can see the tradeoff in risk/reward by using the fuller model...we clearly get bigger returns with the more robust model, but incur more volatility along the way.  On the shorter term time frames the pure currency model is a bad choice and shows little evidence of the trending behavior the T2 model likes to capture.  Although the US dollar double (UUP) has been leading the pack for some time the percentage change in this low beta instrument make it a difficult way to beat, or even keep up, with the SPY.
That's why I suggest using the fuller FX model with the commodity based currency outliers and SPY as active components.
If you want to pursue this idea further one avenue of opportunity is a top 1 sort of the last FX model posted here yielding 10% over 2 years but surprising robust over the past 30 and 60 days.