BO96: Correlations Among Sectors & Asset Classes

Top Traders Unplugged

Niels Kaastrup-Larsen

Business, Business News, Investing, News

4.8 • 670 Ratings

🗓️ 10 June 2020

⏱️ 11 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Dealing with correlations on different asset classes.

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Transcript

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0:00.0	Let me jump to one of the first questions we have here. It's from Kyle.
0:08.3	And he says that if there is one question, I could have you ask your professional guests.
0:16.6	That must be you guys. How do they adjust their sector and acid weighting when they're mandated
0:22.6	to stay with that asset or sector? In other words, what's the preferred method of dynamically
0:28.3	rebalancing a portfolio? I've read Catherine Kaminsky's book on Manish Futures and it offers a few
0:34.3	good points on this. However, I'm curious when these early trend followers started their funds,
0:39.9	how did they know how to initially balance their systems to avoid blowing up early?
0:45.4	I think the answer lies in the type of volatility measures,
0:49.7	such as ATR standard deviations or price from the mean,
0:54.0	adding up the basis points of allocation and margin risk, et cetera.
0:59.2	So over to the professional part of the podcast, Jerry and Moritz.
1:08.3	Jerry, I think you should go first.
1:09.9	Well, yeah.
1:12.9	So the last part about blowing up, you know, once again, that's going to be a little,
1:19.6	probably the biggest decision, most important decision any trader can make is the initial
1:23.9	choice of leverage.
1:25.7	I'm going to try for 8%, 16%, 28%.
1:28.8	You know, what am I going for?
1:30.6	It's very difficult to get that wrong in the sense that in the midst of a drawdown,
1:35.9	you're not happy with that initial choice and try to come up with ways to not have to pay the piper
1:41.5	for trading too large.
1:49.7	But I think my answer is not very sexy because I set up the portfolio based upon whatever weightings I can get the most amount of diversification.
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