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daskapital


Total Posts: 10
Joined: Mar 2012
 
Posted: 2015-06-19 12:40
Suppose that I have N trading algorithms generating N asynchronous return series. How do I work out the optimal mix relative to, say, Sharpe ratio?

I could, of course, interpolate all data series to a uniform time step (the greatest common divisor), and go with the standard portfolio optimization algorithms. But wouldn't this naive approach tend to favor the system with the longest holding periods? A positive return on, say, daily, interpolated on the hourly, would produce a nice smooth uptrend, which of course seldom is true.

Ideas?

deeds


Total Posts: 348
Joined: Dec 2008
 
Posted: 2015-06-19 12:50

The framework in this paper may be relevant, setting aside the immediate application described by Derman.

mmport80


Total Posts: 85
Joined: Jul 2010
 
Posted: 2015-06-19 13:01
Equalise marginal risk contribution of each strategy? Best bang for your risk adjusted buck..

--- http://johnorford.blogspot.com http://blog.johnorford.com

daskapital


Total Posts: 10
Joined: Mar 2012
 
Posted: 2015-06-19 13:50
Thanks for the suggestions. I'll look into Derman's paper, deeds.

Mmport - any suggestions for practical implementation? The returns are asynchronous, and estimating correlations in such signals is not trivial (e.g. http://arxiv.org/abs/0805.2310).


Rashomon


Total Posts: 171
Joined: Mar 2011
 
Posted: 2015-06-19 15:34
daskapital, I'm not sure I understand you correctly but it sounds like a multi-armed bandit problem.

"My hands are small, I know, but they're not yours, they are my own. And they're, not yours, they are my own." ~ Jewel

mmport80


Total Posts: 85
Joined: Jul 2010
 
Posted: 2015-06-20 04:00
Who are your stakeholders? What's their time frame?

I doubt anyone care about their hourly return rate, right? Perhaps they focus on daily or longer?

If that's the case, perhaps the async-ness is not the issue you believe.

Then again you know your situation better than me, paint a picture, perhaps I'll understand better then...

--- http://johnorford.blogspot.com http://blog.johnorford.com

Scotty


Total Posts: 721
Joined: Jun 2004
 
Posted: 2015-09-16 17:28
Hi DasKapital

Following mmport80's line of thought, see the book 'Introduction to Risk Parity and Budgeting' by Roncalli.

Also see the 'alpha streams' stuff from Zura Kakushadze (via SSRN).

Let me know how you go or if you want to discuss more.

Scotty


“Whatever you do, or dream you can, begin it. Boldness has genius and power and magic in it.”

NeroTulip


Total Posts: 997
Joined: May 2004
 
Posted: 2015-09-17 02:40
Interpolating returns to the highest frequency would give garbage because of the smoothing effect you mention. On the other hand, you would not go terribly wrong aggregating to the lowest frequency. If you have hourly and daily strategies, the correlation of daily returns would not be a bad starting point.

Inflatable trader
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