Strata – Choosing a portfolio

Like our other trading systems, we are providing signals for different variations of the Weathervane strategy. Each portfolio uses the same underlying concepts, applied to a different pair of trading symbols. So which portfolio should you trade? 

One way to select a portfolio is by looking at the performance metrics. Two of my personal favorites are  Compound Annual Return (CAR) and Max Drawdown, because these offer a good summary of reward and risk. If you compare the portfolio for SPY/TLT to the one for QQQ/TLT to the one for SSO/UBT you will discover that as the CAR rises, so do the largest drawdowns. Experienced traders will immediately recognize that this is quite common for trading strategies of all types: higher rewards come with higher risks.

Another way to evaluate the Weathervane portfolios is to consider how they might correlate with your existing strategies. For example, if you already trade a lot of tech stocks then you might not want to amplify your tech exposure by trading the QQQ variation of Market Surfer, as the NDX 100 index that QQQ follows is notably tech-heavy. You can use The Spreadsheet and the Correlation Matrix tools to help you decide.

Good Quant Trading,

Cesar & Steven