The Correlation Hedge

 

We carried for you short ideas and long ideas. It may seem strange or coincident but both the list of stocks delivered vs. Nifty. Now our long ideas are more intermediate in nature. And since we don’t have spot instruments to short, the short signal ideas are leveraged, sharp stopped and minor (few days) in nature.

Today we have created a new innovation for you. The reason we call it innovation is because the idea is built on Jiseki and statistics. What is the innovation? Considering our long ideas are intermediate (multi week) and primary (multi month) in nature, we still plan to hold the long ideas. Now either we can hold them actively or passively. Buy and hold is the passive choice where long ideas should outperform Nifty. On the other hand we can actively and dynamically hedge the long ideas portfolio.

Hedging (avoid our long portfolio losing value) is always a tricky exercise. How have we made it simpler for you? We looked for the best positive and worst negatively correlated ideas vs. our long idea components and then we tested the pairs. We got the best results in the following positively correlated intermarket pair components…

This pairing approach can be used to not only selectively hedge a long only portfolio but also deliver positive pair results during the hedge period.

To read more about our JISEKI Rankings, Indices, Signals and queries mail us today.

Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.

Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

Avinash Barnwal is Master of Science in Statistics and Informatics from IIT Kharagpur. He has worked on human response time at Department of Psychology, University of Amsterdam.  Avinash is a Quantitative Analyst at Orpheus developing money management solutions and building statistical models to address temporal challenges.


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