anyone using multi-strategy and multi-instrument
- Thread starter 0008
- Start date
Perhaps you can "convince yourself" of its truth or falsehood (rather than "prove" it), through repeated experimentation.
Use a random number generator to produce N different equity curves; initially, N=2. Measure the smoothness of each one. Now combine the N equity curves into one, assuming you've invested (1/N) of your capital in each. Measure the smoothness of the combined curve. Which was smoother? The input equity curve, or the combined?
Repeat this experiment ten thousand times.
Now count the number of times that the combined equity curve was smoother than the individual equity curves which produced it. What is the observed probability that the combined equity curve is smoother? 10%? 90%? What is the data telling you?
Now do the whole business again for a larger value of N; i.e., trade a larger number of systems for greater diversification. Run ten thousand trials and calculate the observed probability that the combined equity curve is smoother than the individual systems' curves.
Use a random number generator to produce N different equity curves; initially, N=2. Measure the smoothness of each one. Now combine the N equity curves into one, assuming you've invested (1/N) of your capital in each. Measure the smoothness of the combined curve. Which was smoother? The input equity curve, or the combined?
Repeat this experiment ten thousand times.
Now count the number of times that the combined equity curve was smoother than the individual equity curves which produced it. What is the observed probability that the combined equity curve is smoother? 10%? 90%? What is the data telling you?
Now do the whole business again for a larger value of N; i.e., trade a larger number of systems for greater diversification. Run ten thousand trials and calculate the observed probability that the combined equity curve is smoother than the individual systems' curves.
Murray Ruggiero
Sponsor
Yes, you can get a smoother equity curve using multiple trading system combined together trading different markets. The the strong point of TradersStudio.
We manage about 60 million and do it using 10 different systems combined into various tradeplans , we combine both trend following and counter trend methods.
If you want to do this type of analysis take a look at TradersStudio. If you have any question you can post here or PM me.
We manage about 60 million and do it using 10 different systems combined into various tradeplans , we combine both trend following and counter trend methods.
If you want to do this type of analysis take a look at TradersStudio. If you have any question you can post here or PM me.
Curve is smoother, risk is lower, but return is lower. Also, although most of the time diversification (modern portfolio theory) works, during times of crisis formerly uncorrelated instruments suddenly become correlated, and you aren't diversified anymore, and precisely at the time when diversification is desired most. What you really need is diversification + hedge + know when to get the heck out of the markets and just go to cash. And hedging with options, again curve is smoother, but return is lower. There is a definitely a tradeoff there.
One good post few will understand because few here have the experience needed. Reading Wikipedia and articles is not enough to understand what Stoxtrader wrote.
