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This high sensitivity to changes in volatility is interesting because if you look around the world, there are a lot more countries with higher stock market volatilites than the US. Brazil is an example but you have extremes like Venezuela, or just EMs in general. The EEM (EM ETF) right now has a...

I keep finding more interesting stuff. So gold looked really bad looking at vol of vol but, SD tends to punish UPSIDE volatility as well as downside. Its possible that gold is sensitive because its a form of insurance, and it benefits from disruptions. So I tested for SD of Negative returns (the...

Perhaps 8 year is too little? 16 year intervals S&P500 5% 10y bonds 3% T-Bills 2% Gold 8% So with stocks you are more sensitive to a big dispution that sends volatility higher for a long period of time, than with bonds. In the US, this could come about in the form of a fiscal crisis (and the...

This might explain why Dalio likes 7.5% in Gold and 7.5% in a basket of commodities. Perhaps he is trying to further decrease the volatility of a portfolio by decreasing exposure to gold moodiness with that crazy vol (high SD) AND vol of vol (high SD of SD)

I couldn't raise this theory without testing it If I measure by 4 year intervals, the volatility of volatility (SD of SD of annual real returns 1928-2016) S&P500 7% US 10Y bonds 4% US T-Bills 2% And the surprise Gold 10% In 8 year intervals S&P500 5% 10y bonds 3% US T-Bills 2% but.. Gold 11%...

All of this stuff is quite complex and mathematical, I'm working on all of this in order to create a paper talking about risk parity/balanced portfolios in Brazil. The technical paper wont be hard because you can just put technical terms, number and jargoons and it is all fine. The problem is...

Brazil is a good example of this Extremistan issue. The stock market volatility (SD of annual real returns) after hyperinflation was controlled is 43%, before that (during the hyperinflations) it was 91%. And that 91% lasted for long periods of time (with some years being more and some less)...

But one thing is for sure, given the issues I raised about the yearly Sortino (Extremistan and not accounting for big gains that dissapear), the 50% historical allocation to stocks that the computer recommends is almost surely too high (if you are going for a "tangency" portfolio, that is). But...

One of the issues with using the yearly Sortino ratio is that it doesn't capure the times you were up nicely (say 8%) and then had losses all the way down to 1%, for instance. its a positive year but there was a lot of downside vol (and even if it were to go negative to -1%, it wouldn't raise...

There is one issue with my data here which is that the data is not standarized, I'm comparing SPY to IEF and the S&P500 to the 10y constant maturity bond return. IEF is a 7 to 10y bond ETF (8.5y Weighted Avg Maturity right now)The 10y constant maturity bond return is likely to have more duration...

I run some numbers to try to figure some things out. I compared the Daily, weekly and monthtly volatility of SPY to TLT and IEF. Yahoo has data going back to 2002 for all of them. So, the more you lenghten the time horizon, the less volatile the stock market is compared to the bond market...

Cool. Do you happen to know what was the average duration of the 30y bond vs of the 10y bond since 1977?

Media analyzing risk parity allocation to commodities using 23 years of data of one country "Including passive ownership of commodities can be a significant long-run drag on returns, as a risk-parity index constructed by Salient Index Management shows. It has sharply underperformed both stocks...

So I just sold half my TLT but bought ZN futures (10y) in a greater duration adjusted proportion. The net effect is for me to increase my bond exposure. As if I sold 4% in TLT but bought 8%. I'm doing this because: -that TLT was leaving me with a negative cash balance at IB (and IB rates are...

This 'alpha fund' that I manage for myself, I will try to keep small. I think it makes sense to weight it similarly to the other Alpha exposures that I have. That way if I'm off my game I wont ruin the performance of the portfolio. Except, when I have a lot of conviction in something. That's...

What could make sense here is to 'weight' these allocations differently based on how much Alpha/Beta they are. BRKB is mostly Beta with some Alpha involved (for the reasons mentioned above), so perhaps I need to weight it as 75% beta and 25% Alpha. I got 12% in there so by 'Dalio weighting', my...

I"m in a good position because even though the US could be in this situation where the return on cash can be higher than in other places like bonds, gold, etc. Brazil is likely to be facing the opposite scenario, the return on cash has been good for a few years and this has put pessimism in...

A huge question that I have, Dalio says that in his All-Weather fund they deliver beta but give some alpha for free (by overriding it ocassionally). One of the risk controls is to implement portfolio changes when they think cash/risk free rate assets will outperform risk assets , which COULD be...

On the BRKB side, I got to count that more as a 'true stock' rather than Alpha because his portfolio is now so big is quite correlated to the S&P500. Both BRKB and the S&P500 will collapse or prosper together but BRKB should have an small edge over the years With PSH, thats more true a Alpha...

However, this is all very complicated because as Dalio says, it depends on whether the manager is benchmarked and if he has a tracking error. Both Ackman and Buffett are not really tied to the S&P500 because they got permanent capital and can do almost whatever they want, so that allocation is...