Posted by Jrinne at Jan 17, 2022 11:06:49 AM
Re: Risk
Hi Scott,

All good points. I had some of your same thoughts. It is actually a strategy with pretty high turnover. I took some action on your idea of overfitting The "until it doesn't" period starts 11/14/2018 (until now).

I used factor analysis to reduce the overfitting. The resulting less-overfit SIM is imaged below. Same period and I checked to make sure it was variable slippage with average of hi-lo purchases/sales.

One problem I am having as far as committing any money to this sim is that ports (exact same rules, universe etc) run over the same period are very different.

By that I mean different holdings, different rankings for the holdings when bought and sold and different returns with the port (anecdotally) underperforming the sim.

People (including me) can speculate or guess what that discrepancy might mean but I do not think anyone really knows for sure (this applies to me).

I am left with the idea that a little beta might not hurt and any speculations that there is still some alpha there may be entirety correct.

Regret can go both ways (first): " Gosh I lost a lot of money on that." But also (second): "I wish I had just funded that sim and figured out why the port had different holdings later. I could have been super-rich."

I think I will fund it as a beta strategy and fund it to a greater extent later if it turns out to be a strategy with alpha.

In other words, I agree with you (and Matthias) completely. Thank you.


Attachment Less Overfit.png (221743 bytes) (Download count: 84)

Great theory, "and yet it moves."
-Quote attributed to Galileo Galilei (1564-1642) gets my personal award for the best real-world use of an indirect proof or reductio ad absurdum.