Pairs trading is the classic example of a
market neutral strategy but here's another approach that is very risk adverse and still keeps making money is an up or down market. We use the M3 platform and view the performance of 3 inputs > SPY, SH and XLU. I've talked about the logic of using XLU as an outlier in this type of long/short model before and this is just a variation of that idea. We use the same .6% limit stop across the board and if you look carefully you'll see the "2" box in the header checked...meaning we have vested positions in the top 2 ranked issues at the close of each trading session. What's interesting about this tactic is that it makes money whether or not we turn on the 3 day mean reversion auto stop. (green "MR" box in header). Without the auto stop the model just kicks out a ranking based on positive 10 day momentum and relative strength.
Going forward with the Mosaic site we'll be posting 4 daily updates soon, including one of these 2 models (yet to be determined) the SPY and XIV LABS and either M3+ or M4. That model portfolio should provide a full spectrum of defined risk profiles to suit your particular comfort level.....and when we get consensus across all the models we can be more assured of a favorable outcome...discounting the always unknowable news surprises.
First, with no mean regression auto stop>
Then with the mean regression auto-stop>
