Saturday, April 30, 2011

Hedge: Another Try

Previously I discussed the unexpected behavior of the bottom 20 stocks by fundamental ranking that resulted an unsuccessful hedge strategy. Later on I found that stocks only within the bottom 50 has such unexpected behavior. The finding encouraged me to device a new hedge strategy with stocks that ranked bottom 51 through 70. Hopefully with the bottom 50 (those ill-behaved stocks) removed, I could see some improvement.

The result is charted below. I do see some improvement, but there are things I don't like:
  • The maximum drawdown is reduced, but not by much. Originally it's about 60%, after it's about 50%.
  • The hedged portfolio shows higher volatility than the original one. Such as July, 2009 to September, 2009, and January, 2010 to May, 2010.
I may not choose this strategy, either.

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