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 gill Total Posts: 201 Joined: Nov 2004
 Posted: 2017-09-20 15:04 HelloI have a question about optimal allocation between different trading strategies. Unlike classical portfolio optimization the task is more parctical since variance-covariance matrix between returns of individual strategies is unstable and is't not easy to find the drivers for performance of individual startegies (i.e. those are not carry trades or some sort of shoort vol trades)I saw portfolio optimization with maximum entropy, anything else which is sensible ?By sensible i mean a practical approach without risk of overfitting.
 Maggette Total Posts: 1129 Joined: Jun 2007
 Posted: 2017-09-20 15:30 I'am not sure how entropy fixes the problem (which I guess is instationarity...and that includes the correlation between return time series of your startegies).I do like very very simple heuristics and numerical approaches. This might be stupid, but how about this:"block - resample" your stragies" and use a meta-heuristic (like differntial evolution) to optimize your protfolio weights. Let us assume you have 3 strategies x,z,y. These lead to three time series:x: (x1,x2,x3,x4,x5,x6,....,xn)y: (y1,y2,y3,y4,y5,y6,....,yn)z: (z1,z2,z3,z4,z5,z6,....,zn)By block resampling I mean you create a monte carlo simulation that simulates all three strategies at once by block resampling or block bootstrapping.You draw random samples with replacement from your history of x,y,z for several time intevals of random length k.Like for example your first sample could have k = 4 and is called s1 :s1_x: (x3,x4,x5,x6)s1_y: (y3,y4,y5,y6)s1_z: (z3,z4,z5,z6)The next (s2) for k = 2 might look like :s2_x: (x1,x2)s2_y: (y1,y2)s2_z: (z1,z2)The next again (s3) for k = 3 might be s3_x: (x5,x6,x7)s3_y: (y5,y6,y7)s3_z: (z5,z6,z7)Then you string together a history (this is a single path in a classical MC simulation) of all strategies:x: s1_x + s2_x + s3_xy: s1_y + s2_y + s3_yz: s1_z + s2_z + s3_zYou do that m-times (m times 3 return series). Then you use differential evolution (or some other meta heuristic) to find the sharpe-ratio optimizing weights for x,y,z over all paths. The thought here is you might catch autocorrelations of your strategies as well as cross-correlations between the strategies. Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...
 ronin Total Posts: 457 Joined: May 2006
 Posted: 2017-09-20 15:32 It really depends on what you are optimising for.We tend to worry about max drawdown, so we use some measures based on that. But that's just us. "There is a SIX am?" -- Arthur
 gill Total Posts: 201 Joined: Nov 2004
 Posted: 2017-09-20 16:43 Thank you Maggette!Thats similar to a bootstrapping procedure used by economists to get a biggers sample size. Have you tried that approach ? Was out of sample performance consistent with your expectations?
 gill Total Posts: 201 Joined: Nov 2004
 Posted: 2017-09-20 16:46 Thank you Ronin! I was thinking about maximization of Sharpe ratio since returns can be approximated by normal distribution, but if you can share your approach for drawdown minimization I would very much appreciate it!
 Maggette Total Posts: 1129 Joined: Jun 2007
 Posted: 2017-09-20 16:48 Right. IMHO the classical boostratping just takes a sample of dimensions = number_ofStrategies times 1 =>[y_i,x_i,z_i], I wasn't aware that my great ;) idea to take samples of dimension: number_ofStrategies times k. For my strategies (which are simple ETFs) I did this but my out of sample experience size is n = 3 :) (just went live with it). So can't say anything smart about it.edit: I used differential evolution for the optimization part. You have to be carefull withe the parameters here, or your optimization is just fancy overfitting. Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...
 EspressoLover Total Posts: 368 Joined: Jan 2015
 gill Total Posts: 201 Joined: Nov 2004
 Posted: 2017-09-21 09:57 EspressoLover: thats a prop book i was talking about, so an outflow is not a factor. And as long as i stay within the limits the risk management is okay with that. Although so far that was a big success without any serious drawdowns and I am not 100% sure about there reaction when things turn sour....
 ronin Total Posts: 457 Joined: May 2006
 Posted: 2017-09-21 10:55 @gill,There is no specific formalism. You have to use your judgment, like @espressolover says. If there was a formalism, it would still involve optimizing the "return per unit of risk" of your portfolio. It's just about how you interpret the "unit of risk" part.In the lognormal world, your basic unit of risk is the standard deviation. That leads to the classical portfolio theory. Or you could use any other measure of risk, like VaR (which would still end up optimizing for Sharpe), or some tail measures like cVaR, ES or maxDD (which may end up quite different, depending on how skewed the individual strategies are).But at the end of the day you will just end up with a bunch of numbers - it's up to you what you decide to do with those numbers. "There is a SIX am?" -- Arthur
 finanzmaster Total Posts: 168 Joined: Feb 2011
 Posted: 2017-10-03 12:09 I encountered this by wikifolio, where one can not only run his own strategy but also make a portfolio of such strategies (so called DACH-wikifolio).One guy asked me to optimize his DACH-wikifolio.However, since wikifolio publishes all info, I didn't look just at performances statistiscs of components but rather scrutinized, which stocks each component trades and so on.If you do not have this info (and all that you have is time series of returns for each strategy) then you have to check for their stationarity. And if they are (more or less) stationary, you may try e.g. my approach based on Kelly criterion www.yetanotherquant.com - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students
 John_Livermore Total Posts: 2 Joined: Nov 2017
 Posted: 2017-11-20 17:14 My way of creating a portfolio is by combining systems which I know have different concepts and thus are prone gain during different market conditions. Here is explained more. I think understanding your systems well makes a lot easier choosing the right systems. http://professionaltradingsystems.com
 finanzmaster Total Posts: 168 Joined: Feb 2011
 Posted: 2017-11-23 12:26 >professionaltradingsystems.com>918% in 4 monthsDo you have a track record on myfxbook oder fxblue? :) www.yetanotherquant.com - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students
 panistefanin Banned Total Posts: 10 Joined: May 2018
 Posted: 2018-05-22 11:22 Unfortunately, I can not help you! I'm not good at this. Sorry!(( green dot moneypack customer service
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