"The ONLY reason". That is FALSE, and Maestro may not be a maestro in this subject unless he wants to be in the name.
Here is what people need to understand:
A. Each strategy has a mean and a variance.
B. If you allocate capital to 2 strategies with a given weight to each that sum up to 1 (which is called convex combination), then this implies is the mean of the overall strategy is the weight sum of the means of individual strategies, but the variance of the combined strategies depends not only on the variance of each, but also on the covariance of the two (on the covariance matrix in case of many).
C. If the convariance in point 2 is zero or negative, then the variance of the combination is less than the variance of each strategy.
The implication of point C are multifold:
1. You have a portfolio with a lower variance if the covariance is negative or zero.
2. If you are a broker, and you have a customer with a combined strategy that has a non-positive covariance then you will see his equity bounce less. The broker can then feel better and may impose less margin requirements (you can see this in case of SPAN)
3. A trader needs to understand that variance has an impact on the fraction of capital to allocate to a trade. If the variance is high, the fraction of cashthat should put in a trade decreases when compared to the cash sitting idle, as otherwise you decrease the mean return when the fraction goes beyond a give threshold value.
4. Unless your probability of success is way too high (almost 1), the cash sitting idle for the next trade in point 3 will be much higher than the cash working in trade or set of trades. Therefore, you do not need to acquire a higher margin. And acquiring it can actually be dangerous as it can reduce your return.
5. If you want higher margin, then understand that if you get half margin requirement, then you need to scale you trade size by half. Because if you do not then, according to point 4. you are doubling the size of your trades when your money management tells you that you should proceed with half as much.
Conclusions:
A. Margin increasing techniques are really the wrong issue. If you want to minimize it, there is much easier ways. You need to learn one topic only:
It is called banking in the options market, where you can lend and borrow as much as you want at an interest rate equal to treasuries interest rates. The only requirement is that you will not be able to have a margin ratio less than 2% (check IB for instance).
B. I hope that my above comments make you understand things differently and point you to the way to raise the correct questions and the right directions to answer them.
C. If you want to learn math/probs/numbers/rigorousstuff, would you learn it from a poet/psychologist?
