Universal Investment Strategy

Investment Summary
The Universal Investment Strategy rebalance every month on some multiple of 5% between SPY and TLT that previously maximized the following quantity (returns/vol^2.5 on a 72-day window).

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Investment Performance (Good Investment Selection Guide)
Investment Return (?): 13.17% Volatility (?): 9.90% Sharpe Ratio: 1.33 Maximum Drawdown: -16.80%

Investment’s Fundamental Concept:
The concept on which the strategy is based uses a walk-forward methodology of maximizing a modified Sharpe ratio, biased heavily in favor of the volatility rather than the returns. That is, it uses a 72-day moving window to maximize total returns between different weighting configurations of a SPY-TLT mix over the standard deviation raised to the power of 5/2. To put it into perspective, at a power of 1, this is the basic Sharpe ratio, and at a power of 0, just a momentum maximization algorithm.

Investment’s Logic:

The process for this strategy is the following: rebalance every month on some multiple of 5% between SPY and TLT that previously maximized the following quantity (returns/vol^2.5 on a 72-day window).

The concept on which the strategy is based uses a walk-forward methodology of maximizing a modified Sharpe ratio, biased heavily in favor of the volatility rather than the returns. That is, it uses a 72-day moving window to maximize total returns between different weighting configurations of a SPY-TLT mix over the standard deviation raised to the power of 5/2. To put it into perspective, at a power of 1, this is the basic Sharpe ratio, and at a power of 0, just a momentum maximization algorithm.

Universal Investment Strategy

Other Investment Strategy Characteristics:
Investment Type: Momentum Strategy Investment Risk: 2/5 Low Backtest Range: 30-40 years Rebalancing period: Daily
Investment Strategy Markets:
  • Dow Jones Stoxx 50 index futures (FSTX)