The Traded Portfolio

The exhibits of this page are of proof-of-concept tests that were run in order to explore the efficacy of a modified momentum strategy that avoids losses during bear markets and panics by resorting to cash whenever recent monthly returns have been exceeded by the returns on cash. All data have been subjected to vigorous out-of-sample testing and other analyses that refute the idea that the results could easily be due to chance. Of interest, this working paper which explains the technical details. Strategy parameters were optimized over a 10-yr trailing period. The working paper shows that a momentum-exploiting scheme that does not include the element of resorting to cash during downturns tends to not fare as well with currently-traded securities. That disappointment was the impetus for the development of the repurposed shrinkage estimator approach, with which much better performance was obtained. See “Market Risk Avoidance Overview” under the Performance menu.