Algorithm Performance: 09/22/2022
Performance Rankings
Experimental Sector Neutral: +0.3%
Market Neutral: +0.29%
Sector Neutral: +0.24%
Experimental Market Neutral: +0.09%
Long Term Portfolio: -0.09%
Base Algorithm: -0.43%
The Market: -0.63%
What Happened And Why?
The market opened by continuing its downward trend from EOD yesterday. It mostly went flat, and even slightly up intraday. Then the last few minutes of the trading day came and it dropped all over again.
Our algorithms did about what’s to be expected of them as a result - only our non-hedger lost money today.
While this is a good sign, I’m still not optimistic about technical signals in the near future. Today we tested the sector hedge of our whole portfolio on the pilot. This should let us take advantage of hedging and long-term forecasting, without having to also rely on technical analysis we don’t feel confident in. We cut early in the afternoon for profit, but should have made money regardless of when we exited today. One day does not a successful strategy make, but this is a good sign.
Hedging the long-term portfolio is more complicated than hedging individual algorithms because this time we’re accounting for cross-betas of sector ETF’s. For instance, let’s say you wanted hedge a portfolio with a 0.6 market beta, 0.7 beta to consumer staples, and 0.3 beta to utilities. It’s not as simple as using margin to short 60% of SPY, 70% of XLP, and 30% of XLU. All of those tickers have betas to one another, requiring some more advanced calculations. We only have so much margin available, so we have to make accommodations, and willingly stay exposed to some sectors.
If you’re curious, we don’t go to these lengths for the sector neutral algorithms because it takes a lot of calculation each day we want to do it. This would make backtesting prohibitive.
Tomorrow’s Outlook
The full algorithm reports will be published tomorrow morning, once Allen has had a chance to vet its recommendations. In the meantime, here are our tentative exposures for the trading day tomorrow:
That’s all for tonight. Congratulations to everyone who made money today. Let’s hope for a greener tomorrow.
-Asher
