Comments on: Research says shorting ETFs in a 1X0/X0 portfolio holds unique benefits http://allaboutalpha.com/blog/2008/04/07/research-says-shorting-etfs-in-a-1x0x0-portfolio-holds-unique-benefits/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Fri, 19 Mar 2010 07:52:26 +0000 http://wordpress.org/?v=abc hourly 1 By: Tuesday links: “safe” bond funds « Abnormal Returns http://allaboutalpha.com/blog/2008/04/07/research-says-shorting-etfs-in-a-1x0x0-portfolio-holds-unique-benefits/comment-page-1/#comment-96371 Tuesday links: “safe” bond funds « Abnormal Returns Tue, 08 Apr 2008 15:42:03 +0000 http://allaboutalpha.com/blog/2008/04/07/research-says-shorting-etfs-in-a-1x0x0-portfolio-holds-unique-benefits/#comment-96371 [...] “(I)n a world of scarce great shorting opportunities, shorting ETFs may not be that bad after all - as long as the information ratio is your key metric.” (All About Alpha) [...] [...] “(I)n a world of scarce great shorting opportunities, shorting ETFs may not be that bad after all – as long as the information ratio is your key metric.” (All About Alpha) [...]

]]> By: Bill aka NO DooDahs! http://allaboutalpha.com/blog/2008/04/07/research-says-shorting-etfs-in-a-1x0x0-portfolio-holds-unique-benefits/comment-page-1/#comment-96222 Bill aka NO DooDahs! Tue, 08 Apr 2008 01:01:24 +0000 http://allaboutalpha.com/blog/2008/04/07/research-says-shorting-etfs-in-a-1x0x0-portfolio-holds-unique-benefits/#comment-96222 You know, take ANY TWO equity strategies, call them "A" and "B". Assume they each have a positive expectancy, and that they have a less than perfect correlation to each other. Now it's pretty obvious that combining them would end up reducing volatility and probably increasing CAGR. This could be 50/50, 67/33, or any other split. Let's say ... 81.25/18.75! That's "A" having 13/16ths weight. Now take this blended strategy, and lever it up 1.6 to 1. Gee, think it would outperform either one of its components ("A" or "B")? Why would 130/30 be an exception to that logic? You know, take ANY TWO equity strategies, call them “A” and “B”. Assume they each have a positive expectancy, and that they have a less than perfect correlation to each other.

Now it’s pretty obvious that combining them would end up reducing volatility and probably increasing CAGR. This could be 50/50, 67/33, or any other split. Let’s say … 81.25/18.75! That’s “A” having 13/16ths weight.

Now take this blended strategy, and lever it up 1.6 to 1.

Gee, think it would outperform either one of its components (“A” or “B”)? Why would 130/30 be an exception to that logic?

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