Combined Alpha Strategy
A powerful portfolio combining our three strategies to get higher returns with lower risk through strategy diversification
How it beats passive
- Combine our tactical volatility, cross asset momentum and dynamic rebalance strategies to form our flagship strategy
- Higher returns and lower drawdowns through intelligent porfolio composition to gain strategy diversification
- Thoughtfully use leverage dynamically to improve risk adjusted returns
- Use a multitude of proprietary volatility metrics to step out of danger and benefit from long volatility exposure in times of crisis
- Have a huge dose of humility throughout the process!
| SPY | Conservative | Aggressive | |
|---|---|---|---|
| Growth of $10,000 | $39,229 | $841,176 | $2,972,655 |
| Annualized Return (CAGR) | 9.97% | 35.95% | 48.37% |
| Annualized Volatility | 20.35% | 16.07% | 20.04% |
| Sharpe Ratio | 0.49 | 2.24 | 2.41 |
| Ulcer Performance Index | 0.7 | 14.28 | 11.3 |
| Max Daily Drawdown | -55.2% | -8.94% | -14.53% |
| Max Monthly Drawdown | -50.8% | -6.15% | -10.73% |
Summary Statistics
The power of geometric growth can be seen with how the conservative and aggressive variants returned 21.4 times and 75.8 times returns of the SP500 respectively.
The sharpe ratio (return per unit of risk) of the conservative and aggressive variants are 4.6 and 4.9 times that of the SP500 respectively.
In addition to this, our strategy avoids the huge drawdowns that SP500 has had during recessions. (instead benefiting from the long volatility exposure)
The monthly and annual returns of the aggressive variant of the backtested strategy since 2006 are given in the table. Months with more than +2% returns are highlighted green and less than -2% returns are highlighted red.
We have been live-trading the aggressive variant of the strategy since May 2018 except for the long vol component (please contact us for those results) and with the long vol component since April 2020.
The conservative and the aggressive version of the strategy had a maximum monthly drawdown of 6.3% and 13.5% respectively compared to the maximum monthly drawdown of the SP500 at 50.8%.
| Conservative | Aggressive | |
|---|---|---|
| Daily | 52.04% | 54.31% |
| 1 Month | 52.6% | 58.96% |
| 3 Months | 56.14% | 67.25% |
| 6 Months | 61.31% | 75.6% |
| 1 Year | 67.9% | 87.65% |
| 3 Year | 81.16% | 100.0% |
| 5 Year | 100.0% | 100.0% |
| 7 Year | 100.0% | 100.0% |
What are base rates?
Base rates are the batting average of a strategy. A base rate of 60% for monthly returns means over all rolling periods of a month, the strategy beat the SP500 60% of the time.
Notice how the aggressive variant beats the SP500 over all 3, 5 and 7 year rolling periods.
The conservative variant also beats the SP500 over all 5 and 7 year rolling periods with much less risk as shown below.
The scatter plot shows how the aggressive strategy’s daily returns are very uncorrelated with SP500 returns.
Additionally, the convex impact of tactical long volatility exposure can be seen when the SP500 daily returns are very negative. It is during these times where our strategies truly shine. Traditional asset classes correlations all go to 1 during these times. This is exactly where long volatility exposure gives us the most benefit.