Ideally you'd trade forwards which always start on quarterly IMM dates. This is what they do in CTA land. Then you have something that looks almost exactly like a future (assuming you also cash settle the forwards on expiry). Last time I checked some spreadbetting firms offer something similar to this, although as usual the spreads are too wide for my taste. GAT
Non equal instrument weights don't "offset" correlations exactly but I think I understand what you mean. On a portfolio like this where most of the correlations are pretty similar it wouldn't make much difference. GAT
I see, this makes sense. You could still control the frequency you're trading at to keep costs in check, but obtain greater diversification. I was wondering, where do you source your Korean 3yr, 10yr and Kospi200 futures data from? I see none of this is available on Quandl...
GAT, how do you calculate your individual instrument volatility forecasts (for risk targeting)? I've tried various timeframes for rolling stdev of daily returns, and I find that the results from my backtest are sensitive to how I calculate this volatility (sharpe could vary from 0.3-0.8 depending on how I measure the vola).
How did you pick this value? Do you know why the results would be so sensitive to how long the lookback is?
Same as riskmetrics (to be precise I use a=.054 where v_t=a*x_t + (1-a)*v_t-1 and x_t = r_t ^ 2) I'm very surprised the results are so sensitive. For lookbacks from 1 week up to around 20 weeks I found almost no difference in pre cost SR. Of course the faster lookbacks cost more to trade. For cheap futures using the default is fine. For expensive ETF's using a slower lookback makes sense, up to a point. If you're interested there is much much much more on this in chapter 12 of my book. GAT