Monday, August 19, 2013

Hybrid Model Details...8.19.13

Here are a few nuances concerning the hybrid currency, country, commodity model posted last Friday.
There are several features that make this an interesting investment but, as mentioned, close attention to the money management stops is crucial...making this moe like a trading portfolio  Although the performance metrics shown DO NOT reflect the application of the P6 or RSQ stops, it's clear that net retruns could be improved significantly if those stops were followed.

Note the yellow arrows indicating that an all in all the time portfolio of the 11 components would return just 2% over 2 years, reflecting the underlying market neutral features of the portfolio. At the same time note that the volatility of the model is considerable greater (at present) than the SPY benchmark, which is both good (the short term metrics of the model are stellar) and bad (the drawdown metrics are greater than the SPY).

Per the red arrows note that this is a top 2 sort shown...Friday's post was of the top 1.Also note the parabolic situation of the current equity curve (blue) and the P6 (red) relative to the RSQ.  While recent momentum has been a barn burner such accelerated strength cannot be sustained and the position of these lines should be a heads up to exert extreme caution going forward.  While we may not expect a dramatic collapse in the momentum of the top sort leaders there will quickly come a time when momentum will abate and a new leader sort will appear...most likely WITHOUT the almost vertical equity curve we currently see.
There are times for aggressive investment and times for caution with this model.....this is one of the later.