One system, two portfolios, 24000 parameter settings

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sluggo
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One system, two portfolios, 24000 parameter settings

Post by sluggo » Wed Oct 20, 2010 10:25 pm

For the past 5 years or so, I've consistently noticed a trend in my research results: diversifying the portfolio of traded futures markets, beyond the boundaries of the United States, has been very profitable. Both in research (backtesting) and in real life, real money trading.

Here is one small example. I've chosen to define nine "sectors" or "groups" of futures markets, and selected a US-only portfolio by choosing five markets from each sector. (However, some sectors contain fewer than five US markets, so I just took all available US markets in that sector. This happened in meats, STIRs, LTIRs, and Energies.)

Code: Select all

PORTFOLIO: USA-38

Grains                      Corn, Oats, Rough Rice, Soybeans, Wheat
Metals                      Gold, Copper, Palladium, Platinum, Silver
Meats                       Milk, Feeder Cattle, Live Cattle, Hogs
Softs/Tropicals             Cocoa, Cotton, Coffee, OJuice, Sugar
Stock Indices               eMini S&P, eMini NASDAQ, miniDow, miniMidcap
Short Term Interest Rates   Eurodollars, FedFunds
Long Term Interest Rates    5Year, 2Year, 10Year, Bonds
Energies                    Crude, HeatingOil, NatGas, RBOB
Currencies                  Aussie, British, Canadian, Euro, Yen
There are 38 total markets in this US-only portfolio.

I chose another portfolio of 38 markets, but this time included non-USA markets in my choices. The second portfolio had the same number of markets in each sector as the first portfolio, as you can see:

Code: Select all

PORTFOLIO: INTERNATIONAL-38

Grains                      Corn, ParisRapeseed, RoughRice, Wheat, KC Wheat
Metals                      Gold, Silver, LMECopper, LMENickel, TokyoPlatinum
Meats                       Milk, Feeder Cattle, Live Cattle, Hogs
Softs/Tropicals             LondonCoffee, LondonSugar, TokyoRubber, Cotton, MalayPalmOil
Stock Indices               HangSeng, Singapore, Topix, CAC-40
Short Term Interest Rates   FedFunds, EURIBOR
Long Term Interest Rates    5Year, 2Year, Japanese, Swiss
Energies                    LondonCrude, LondonGasoil, NatGas, RBOB
Currencies                  Euro/Yen cross, NZDollar, Yen, Euro, DollarIndex
I ran the two portfolios on the same system, the Blox presupplied "Triple Moving Average" system. I swept the parameters of this system over a wide range, shown in Figure 0. This is a total of 16 x 10 x 15 x 10 = 24,000 different parameter settings. Results are shown in Figure 1 and Figure 2. These are "Sharpe Efficient Frontier" plots as invented (HERE).

Each of the 24,000 simulated parameter variations is plotted as a dot on this scatterplot. The X-coordinate shows the average trade duration for that particular parameter set, and the Y-coordinate shows the Robust Sharpe Ratio.

Figure 3 overlays the Frontiers (the upper boundaries) of the USA-38 portfolio results, and the INTERNATIONAL-38 portfolio results, on the same graph. As you can see, diversifying from USA to INTERNATIONAL has increased profitability, at least in this particular case of this one system and these two portfolios. However, I have seen confirmations of this general trend, again and again: the more I diversify globally, the better the results. This is merely one example.

Please feel free to perform similar experiments yourself, possibly using different systems, different portfolio construction rules, different portfolio sizes, and so forth; whatever interests YOU. Run some tests! Collect some data! Analyze the results and, occasionally, have a Eureka! moment.

EDIT: added another paragraph
EDIT2: fixed spelling mistake
EDIT3: fixed incorrect extra mkt in International list
Attachments
fig3.png
Figure 3
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fig2.png
Figure 2
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fig1.png
Figure 1
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fig0.png
Figure 0
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Last edited by sluggo on Mon Nov 01, 2010 2:43 pm, edited 3 times in total.

LeviF
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Post by LeviF » Wed Oct 20, 2010 11:44 pm

Thank you for sharing. I wonder what happens if you dont include any US markets.

rhc
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Post by rhc » Thu Oct 21, 2010 9:26 am

For the past 5 years or so, I've consistently noticed a trend in my research results: diversifying the portfolio of traded futures markets, beyond the boundaries of the United States, has been very profitable
Since 2002 the US dollar Index has generally been down, therefore investments made by Americans in offshore countries in the currency of that country would most probably have resulted in a foreign exchange gain when the local country currency is converted back to US dollars. In this way any investment profits made overseas in the local currency would have been enhanced when converted back to USD and any losses made overseas in the local currency wouldn't be as harsh when converted back to USD.

Could some of the above mentioned profitable results (over the last 5 years) have come from the fact that the USD has been the sick man of the currency world for the last 8 or so years?

I note that the test period for the test above is from 1990-2010. This covers a bull & a bear cycle for the USDX. It would be interesting to know how the international portfolio performed relative to the US portfolio from 1990-2000 & then from 2000-2010.

Thanks,Sluggo, for a most interesting post.

sluggo
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Post by sluggo » Thu Oct 21, 2010 9:38 am

LeviF, rhc:

Please feel free to run similar experiments yourself, possibly using different portfolio compositions, different start- and end-dates, different base currencies for the trading account, and so forth; whatever interests YOU.

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Post by Chris67 » Thu Oct 21, 2010 9:46 am

RHC - I bet the USD value has nothing to do with it
The reason is simple - different time zones - that is why Gold and Tokyo Gold can be traded as 2 totally different instruments - non correlated and like trading chalk and chese

sluggo
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Post by sluggo » Sat Oct 23, 2010 9:57 am

This morning it occurred to me that plotting both sets of scatter dots on the same graph would yield a more compact illustration. So here it is, Fig 4 below.

Notice the white space "gap" between the worst performance (bottom most) blue dots, and the best performance (top most) red dots.

For any particular average trade duration you choose, the worst performance on the International portfolio, is better than the best performance on the USA portfolio. That's kind of dramatic.
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Figure 4
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alp
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Re: One system, two portfolios, 24000 parameter settings

Post by alp » Sat Oct 30, 2010 5:44 pm

sluggo wrote:Please feel free to perform similar experiments yourself, possibly using different systems, different portfolio construction rules, different portfolio sizes, and so forth; whatever interests YOU. Run some tests! Collect some data! Analyze the results and, occasionally, have a Eureka! moment.
Sluggo, I would be interested in a test of different systems over a small number of liquid, highly speculative markets. Do you have any thread for reference in your database?

sluggo
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Post by sluggo » Mon Nov 01, 2010 8:32 am

Good luck with your research! Please consider sharing the results here.

I don't have a specific recommendation or reference to suggest, but here is a general recommendation: Try to find your own happy medium, somewhere between these polar extremes:
  • Frank Westheimer: "A month in the laboratory can often save an hour in the library"
  • Joubert (Max von Sydow), Three Days of the Condor: "There's only yourself. The belief is in your own precision."

sluggo
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Post by sluggo » Mon Nov 01, 2010 2:51 pm

Whoops! :oops: An alert reader sent me an email pointing out that the original post, above, says the International portfolio had 5 markets in the StockIndex sector, but the USA portfolio only had 4 stock index markets !??!

I made an error when transcribing the two Blox futures .set files. These are alphabetized lists of CSI symbols. When I transcribed these into lists of full length market names, sorted by sector, I must have gotten distracted when working on the symbol "DX," because I apparently transcribed DX twice: once as the Dollar Index (currency futures), and then again as the DAX (German stock index). Very sorry about the error!

I've fixed the lists in the top post of this thread, above; now both portfolios have got the correct number (4) of stock index futures markets. The correction was: International-38 did not then, does not now, and will not in the future, include the DAX stock index futures.

Sluggo

LeviF
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Post by LeviF » Mon Nov 01, 2010 5:04 pm

sluggo wrote:LeviF, rhc:

Please feel free to run similar experiments yourself, possibly using different portfolio compositions, different start- and end-dates, different base currencies for the trading account, and so forth; whatever interests YOU.
Sluggo,

Please do not assume I was asking you to perform this test for me. It was just a theoretical question. Thank you for posting your results.

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