Formula For Volatility Adjusted SPY Hedge

Discussion in 'Risk Management' started by jayjay121, Mar 22, 2012.

  1. newwurldmn


    You shouldn't hedge because you are saying a stock will go up or down independent of the market. That's the view you are expressing. Or am I reading this wrong?
    #21     Mar 23, 2012
  2. If you're punting on directional signals produced from a single stock model, where every selection is made in isolation, then you profit or blow up by the efficacy of that directional selection model.

    Assuming your signals are better than random, but fail occasionally, then choosing more than 1 stock is a good idea to diversify away that risk. An occasional loser should be bailed out by the vast majority winners.

    This is the whole idea of a directional model, no? To pick a direction that's usually correct?

    It all hinges on your signals being better than random.
    #22     Mar 23, 2012
  3. yes my signals are better than random and proven to be so over time, so should i hedge or not?

    My equity swings can be huge though, thats why i raise the question of a hedge, would it not smooth?
    #23     Mar 23, 2012
  4. Those sentences conflict.
    #24     Mar 23, 2012
  5. not really,

    i can win big if im too long but also lose big if im too long.

    i can still win if im hedged but reduce big losing days if im hedged somewhat.
    #25     Mar 23, 2012
  6. newwurldmn


    When the market rallies do your shorts lose money?
    When the market sells off do your longs lose money?

    Do you find yourself net long when the market is rallying?
    Do you find youself net short when the market is selling off?
    #26     Mar 23, 2012
    #27     Mar 23, 2012
  8. newwurldmn


    #28     Mar 23, 2012
  9. ok thanks so the formula is?

    just to be sure thanks
    #29     Mar 23, 2012
  10. newwurldmn



    Please don't take offense to this question, but how do you build a presumably sophisticated long short system and not understand beta?
    #30     Mar 23, 2012