We have started algorithm-driven momentum-based weekly rebalance of the portfolios on 13th July 2020 and completed the first six months on 12th Jan 2021. Also, we have a Nifty 50 future based long-short always in position strategy. Which we have started on 14th August 2020 and we have completed around 5 months for the same.
During the first six-month all our strategies have outperformed the Nifty 50 index.
Portfolio performance from 14th August 2020 to 12th Jan 2021
How to generate a stable return in volatile time?
From the given drawdown numbers, we can see that standalone portfolios have a higher drawdown compared to the Nifty 50 Index.
To reduce the drawdown, we have a Nifty Long-Short strategy. Our Long only portfolios are based on the weekly timeframe and the Nifty long-short strategy is based on the hourly timeframe.
The weekly time frame is slow to reflect the short-term movement while the hourly time frame is fast to react to short term movement.
When the overall market is in an uptrend, the Nifty long-short strategy captures the upside by being long during that time.
Also, there is no restriction on shorting on the Nifty future. So, we can capture the downtrend in the Index and able to provide the needed hedge during downward movement time.
Dynamic Hedge of Long Only Portfolio (Model 1 or Model
2) Using Nifty Long-Short Strategy
As you can see from the correlation matrix, Model 1 and
Model 2 are not related to the Nifty Long-Short strategy. So, we can say that
performance of each system is not related to each other.
We are using 3x leverage in the Nifty Long-Short strategy. So, if we allocate 25% of our investable capital in Nifty Long-Short and 75% in Model 1 or Model 2 then we are dynamically hedge.
For example, let’s say you have 10lakh of the capital. You have invested 7.5 lakh in Model 1 and 2.5 lakh in Nifty Long-Short. We use 3x leverage in the Nifty Long-Short strategy. So, the underlying value is 7.5 lakh for Nifty Long-Short.
Long Only portfolio is in the weekly timeframe and Nifty
Long-Short is in the hourly timeframe. So, if the market is crashing then Nifty
Long-Short will come to the rescue as it will provide the dynamic hedge to your
long-only portfolio and provide the stability to the overall portfolio.
From the first six-month return, we can see that Model 1
has a maximum drawdown of 9.70% while Nifty Long-Short has a maximum
drawdown of 12.52%. But if we are using a combined system of
(75%:25%) then the maximum drawdown is reduced to 5.32%. So, the combined
system gives necessary stability to the portfolio and mental peace and at the
same time not impacting the return.
Half Yearly Performance Snapshot PDF
