anyone using multi-strategy and multi-instrument

Discussion in 'Strategy Development' started by 0008, Oct 18, 2010.

  1. 0008

    0008

    I can't prove it mathematically, but I feel single-strategy and single-instrument would lead to a volatile equity curve.

    Do guys here use multi-strategy and multi-instrument method? Can you get a smoother curve?
     
  2. dloyer

    dloyer

    Yes
     
  3. MGJ

    MGJ

    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.
     
  4. Murray Ruggiero

    Murray Ruggiero ET 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.
     

  5. 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.
     
  6. 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.
     
  7. bone

    bone ET Sponsor

    More multi-instrument in different market sectors than multi-strategy, but yes I believe it to be a significant advantage.

    The other piece is that a 'well-behaved' spread will typically exhibit very little flat price instrument directional delta risk.
     
  8. You'd be surprised how all assets are correlated right now, especially when you're betting against them!
     
  9. Bob111

    Bob111

    and one can make money out of that too:D
     
    #10     Oct 20, 2010