Weekly Algorithm Review: 12/18/2022

Algorithm Performance This Week

Market Neutral: +0.79%
Variable Market Neutral: -0.32%
Sector Neutral: -0.61%
Variable Sector Neutral: -1.45%
Base Algorithm: -1.57%
Long Term Portfolio: -1.96%
Overall Market: -3.0%

This week’s review is going to look very similar to last week’s, especially given that the performance ranking is almost identical.

The DOW fell more than 700 points on Thursday, for its worst day since September. This followed a sharp drop Wednesday after Powell raised interest rates again. I’m not going too in-depth on news here, you can see more about that in our weekly market recap, but I want to convey that the latter half of this week was brutal. SPY is down about 4% since Monday’s close. And yet, we did comparatively well.

Our long term portfolio beat the market by more than a percent over the course of the week, and our base algorithm beat that by about 0.4% more. Our low-beta Market Neutral algorithm did as intended, ignoring market selloffs to continue making profit. Variable Market Neutral fell exactly where we expected, between MN and Base.

The review of our existing algorithms is short because there’s not much to say - everything is working as intended. The sole exception is Sector Neutral, but I think this is a consequence of our portfolio’s construction.

I went into this last week, but to recap: our long term portfolio is mostly defensive. Its sector exposures are mostly ones that do well in recessions. As a result, sector hedging becomes a double-edged sword. We can hedge our exposures to high-beta sectors like technologies, but we also lose exposures to sectors we feel more confident in.

In general, I’m going to recommend we use either the base algorithm or the market neutral for the near future. We’ll keep publishing sector neutral, since it gives us more control (we can just ignore the hedges against sectors we particularly like), but my confidence in market neutrality has grown as of late.

Future Developments - What’s In The Pipeline?

The “Hard Rules” algorithm is still in the works. Initial tests look promising, so development is continuing. We’ll give more information as we acquire it. Given that full tests are going to be much more computationally expensive, I wouldn’t expect updates on this for a few weeks.
The Market Game’s weighting systems have been updated. The current weighting system isn’t complicated, but as we get more data for our user base, this will keep advancing to better weed-out inconsistent traders.
There’s one other project I don’t want to announce quite yet, but we think our users will love it. It’s a new bot for our chats, to avoid saying too much. We' probably won’t announce this until we release it.

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