Comments on: unsung virtues of a dynamic hedge http://www.puppetmastertrading.com/blog/2008/06/04/unsung-virtues-of-a-dynamic-hedge/ Algorithmic trading experiences Wed, 28 Jul 2010 01:46:39 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Hack the market » goldman hacks http://www.puppetmastertrading.com/blog/2008/06/04/unsung-virtues-of-a-dynamic-hedge/comment-page-1/#comment-986 Hack the market » goldman hacks Thu, 12 Mar 2009 18:46:19 +0000 http://www.puppetmastertrading.com/blog-test/?p=63#comment-986 [...] first post on the topic, “unsung virtues of a dynamic hedge” published June 4th of last year, was pretty coy and didn’t mention the source of alpha itself [...] [...] first post on the topic, “unsung virtues of a dynamic hedge” published June 4th of last year, was pretty coy and didn’t mention the source of alpha itself [...]

]]> By: tito http://www.puppetmastertrading.com/blog/2008/06/04/unsung-virtues-of-a-dynamic-hedge/comment-page-1/#comment-19 tito Mon, 23 Jun 2008 13:13:12 +0000 http://www.puppetmastertrading.com/blog-test/?p=63#comment-19 Actually, adding the hedge reduces returns very substantially. You can see this by comparing the unhedged returns against those hedged with the SPY. In this case, I’ve taken 50% of the resources of the strategy and deployed them against the SPY. This hurts the overall returns but does have a positive impact on the risk adjusted returns as measured by the Sharpe ratio; returns went down, but volatility went down faster. Even the hedge which is implemented with the ES future is less profitable (slightly) than the unhedged strategy, but its cost is so low that more of the strategy’s performance “shines through.” Actually, adding the hedge reduces returns very substantially. You can see this by comparing the unhedged returns against those hedged with the SPY. In this case, I’ve taken 50% of the resources of the strategy and deployed them against the SPY. This hurts the overall returns but does have a positive impact on the risk adjusted returns as measured by the Sharpe ratio; returns went down, but volatility went down faster. Even the hedge which is implemented with the ES future is less profitable (slightly) than the unhedged strategy, but its cost is so low that more of the strategy’s performance “shines through.”

]]> By: Craig http://www.puppetmastertrading.com/blog/2008/06/04/unsung-virtues-of-a-dynamic-hedge/comment-page-1/#comment-18 Craig Sun, 22 Jun 2008 21:42:09 +0000 http://www.puppetmastertrading.com/blog-test/?p=63#comment-18 I have no better suggestions, I’m quite staggered that simply doing the opposite of whatever your strategy is doing in equities in the ES leads to such a gain. I have no better suggestions, I’m quite staggered that simply doing the opposite of whatever your strategy is doing in equities in the ES leads to such a gain.

]]> By: tito http://www.puppetmastertrading.com/blog/2008/06/04/unsung-virtues-of-a-dynamic-hedge/comment-page-1/#comment-17 tito Sun, 22 Jun 2008 14:41:06 +0000 http://www.puppetmastertrading.com/blog-test/?p=63#comment-17 Thanks - I’m glad you found it interesting. Honestly, relatively little thought went into that selection. Given that the core strategy is trading equities, I felt that I wanted to use an equity index as a hedge and the S&P 500 has the virtue of liquidity, so it seemed to be potentially appropriate. I also tried the russell 2000, but it didn’t perform as well. Do you have an alternate selection to suggest? Thanks – I’m glad you found it interesting.

Honestly, relatively little thought went into that selection. Given that the core strategy is trading equities, I felt that I wanted to use an equity index as a hedge and the S&P 500 has the virtue of liquidity, so it seemed to be potentially appropriate. I also tried the russell 2000, but it didn’t perform as well. Do you have an alternate selection to suggest?

]]> By: Craig http://www.puppetmastertrading.com/blog/2008/06/04/unsung-virtues-of-a-dynamic-hedge/comment-page-1/#comment-16 Craig Sun, 01 Jun 2008 13:31:01 +0000 http://www.puppetmastertrading.com/blog-test/?p=63#comment-16 Very interesting post, may I ask how you arrived at the decision to use the ES (or the SPY) as the hedge? Very interesting post, may I ask how you arrived at the decision to use the ES (or the SPY) as the hedge?

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