Learn about the best performing Strategies
The document discusses the concept of exposure in investment portfolios and explains how to calculate and manage exposure effectively. Exposure refers to the level of investment in a specific asset or market sector within a portfolio. Managing exposure involves carefully selecting assets and determining their allocation to achieve diversification and reduce risk. The document highlights that calculating exposure is straightforward for plain equities, where it is the product of the price and quantity held in the account. However, it becomes more complex when dealing with options positions. In addition to the price and quantity, the delta of the option (which can be positive or negative) needs to be considered for accurate exposure calculation. The net exposure is determined by adding up all the exposures in the portfolio. The document also explains the difference between net exposure and gross exposure in a long/short portfolio. Gross exposure is the sum of the absolute values of all exposures, while net exposure considers the sum without taking absolute values into account. It emphasizes that calculating gross exposure is crucial due to potential basis risk between positions held in the portfolio and the leverage involved. Understanding gross exposure helps manage risk effectively. Overall, the document provides insights into exposure management and highlights the importance of diversification, accurate calculation of exposure, and considering both net and gross exposure in portfolio analysis.
Portfolio back testing is a powerful concept that really helps you check if your strategy works before you make investment decisions
Analyzing Backtesting Results and Improving them
The document provides guidance on analyzing backtesting results and interpreting them effectively. It suggests visiting the top strategies page, which ranks strategies based on the Sharpe ratio, providing valuable insights into successful and unsuccessful strategies over an eleven-year period. Users are encouraged to download positions for further analysis, examining factors such as maximum drawdown and liquidity of specific stocks.