Ended up the day about 1 pct down but I clearly need to do a deeper dive into my portfolio construction. There seems of late to be a very strong correlation to equity returns which isn’t ideal.
Before I went to sleep was up about 3% from long energies & coffee & short cotton, India & currencies. Woke up to zero though as everything reversed a bit, and short bonds got hit again. I think I'm out of more than half of the short bonds from last year, only Japanese have made any money, the rest just went back up and lost $... Goes without saying that equity indices were also losing. I have an ASX Trend & Nasdaq rotation strategy that was also down. Glad I halved my stock strategies since Christmas to focus more on futures trend. Used to do mean reversion which would make me nervous in this environment.
77bps down for me overnight. It was a very volatile day though - at one stage before bed time I was up more than 1.5%. I am heavily long USD esp against CAD & AUD so PnL is very news sensitive. Long Coffee helped, but Robusta went the other way. My single worst performer over night was an OJ long.
I agree with the volatility. I posted earlier that I was down 4.6%. I didn't watch all day but at one point I saw I was only down 1.3% but then I was out for a couple of hours so I don't know where I was at the best time of day. Looks like I finished down 4.1%, but I'll have to wait for my IB statement to know my "official" figure. Only now do I realize that today may have been (depending on where my marks are) my worst dollar loss ever. But since I've grown my capital, it was only my worst loss since the SVB blowup and that loss was much worse than this in percentage terms. Another way to look at it, in terms of standard deviation and knowing that markets are not normally distributed, losses like I had today are normal. In the end, I'm down less than 1% YTD. Plenty of time to make it back.
In the current regime, all these daily changes will mean nothing at the end of tomorrow. Everything might be reversed. Most weeks the daily moves have left me ending the week where I started.. Correlations are all over the place. Gold and BTC are moving with the USD, when it's supposed to be the reverse. Interesting times..
I know it's an imperfect measure but have you measured what your daily VaR is and whether your observation in line? I have setup my system to target ~25% vol on average, so a 2.5% daily move is within spec for 95% VaR limit.
What a bunch of pussies. Unless your annual vol target is like 10% (in which case you're definitely pussies) you shouldn't be freaking out over 3,4% daily moves. Go back and look at the return distributions of your backtests, see just how common moves like that are, and then take a long hard look at yourself in the mirror. If you're worried about equity factor risk, do it properly. Measure it. Look at the range and decide where you'd be uncomfortable. Add an exogenous limit that kicks in there. And then stop moaning. Rob
Thanks Rob, I have cereal with plant milk for my breakfast, which might explain it. I was in fact planning to look at equity factor risk, but I do appreciate a kick up the butt from someone with a preference for a full English breakfast . If I put on an additional exogenous layer to kill risk if the portfolio is highly correlated to equity returns, wouldn't I screw up vol targeting? Wouldn't it be better to look at reconstructing the portfolio to potentially lower these correlations?
I think what you are saying, you tofu eating DEI freak, is that your portfolio weighting to equities is too high? Rob