Wednesday, June 12, 2013

XLF Views (Continued)..6.12.13

Here's a different way of looking at the opportunities in the XLF component model. 
We simply set XLF as the benchmark and then examine whether selectively playing the top 2, 3, 4, etc. helps to reduce risk and enhance returns.

For this study we look at such a model using at top 6 and a top 2 sort:
Both sorts outperform the XLF but what is surprising is that the top 6 sort is clearly the better choice......
Higher returns, less drawdown and a stronger RSQ value argue that a top 6 sort is better.
We also see that the op 6 sort has a lower Skew (volatility) than the top 2 or the XLF benchmark...another supporting metric.

Of note:  both the top2 and 6 sorts have a downslope P6 does the XLF benchmark.

I'll be on the road tomorrow and there will be no posting.