Portfolio Heat

Optuma Forums Optuma Feature Requests Portfolio Heat

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  • #59043
    AvatarDeepak
    • Topics: 29
    • Replies: 15
    • Posts: 44

    Hiii ,

     

    When ever there is a modification in backtester is it possible to add an option of porfolio heat.

     

     

    Regards,

    Deepak

    #59059
    MathewMathew
    • Topics: 32
    • Replies: 1,571
    • Posts: 1,603

    I have no idea what that is? In all my years I have never heard of that.

    Please provide more information and we can look at it.  At this stage, I have another two major projects I need to get through before I will be able to start the testing/portfolio management work I have planned.

    All the best

    Mathew

    #59245
    AvatarDeepak
    • Topics: 29
    • Replies: 15
    • Posts: 44

    Sorry for the late reply.

     

    Here is the link

    https://www.trendfollowing.com/whitepaper/DETERMI.PDF

    The term was coined by Ed. i  guess. So if it can be included in backtester that if portfolio heat is full it dosent take the next signal & so on.

    #59253
    MathewMathew
    • Topics: 32
    • Replies: 1,571
    • Posts: 1,603

    Hi Deepak,

    The concept is interesting and I’d like to look more at it. The trouble is that without information on the tests, I can not be sure about how rigorous they were.

    The key issue is path dependency. We can not be sure that the uplift and subsequent drop in results is a factor of Heat or due to a particular path taken through all the available trades. We would need a lot more information to be able to work that out.

    There is no mention of the Probability of Gain (PoG). The work of Ralph Vince in Optimal f and Risk of Ruin is a lot more in-depth. A key component is the Probability of Gain (or win rate). If the win rate is 50%  (win half the time) then the odds of surviving are terrible. A signal test needs to be above 60% PoG to be even considered.

    The other aspect which is completely missing is a discussion on volatility. While we may not all agree with all aspects of Modern Portfolio Theory (as defined by Markowitz), it does highlight the need to consider returns in terms of the security’s volatility. Any portfolio metric which neglects to include volatility is very simplistic.

    I’ll look more at this when I build in the new testing tools. There is an element of this which is interesting but only within the context of a full robustness test. The goal is to pull them out of Optuma so any list of trades can be sent to them for full analysis. Unfortunately, that is not a trivial task and it will take some time.

    All the best

    Mathew

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