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I have a rotational trading system that gets creative in the position sizing. I was wondering if the following is possible in Amibroker:
- Rank a (small) universe of stocks by a single factor
- Select the top x% and bottom x% to go long and short, respectively
- Weight the individual long and short positions inversely proportionally to their n-day volatility. For example, let's say the system wants to go long and short two stocks on each side. Let IVL1 be the n-day inverse volatility of long stock 1, IVL2, IVS1, and IVS2 be the n-day inverse volatilities of long stock 2, short stock 1, and short stock 2, respectively. Further, let WL1, WL2, WS1, and WS2 be the percent weights of long stocks 1 and 2 and short stocks 1 and 2, respectively. Then, the system wants WL1 = IVL1/(IVL1 + IVL2); WL2 = IVL2/(IVL1 + IVL2); WS1 = IVS1/(IVS1 + IVS2); WS2 = IVS2/(IVS1 + IVS2).
- Then, as a further refinement, the system wants to beta-adjust the short positions relative to the long positions. That is, if the portfolio of long stocks (weighted according to their volatilities) have an m-day beta of B with the portfolio of short stocks (again, weighted according to their volatilities), the system wants to create a long/short portfolio that has B dollars short for every dollar long.
- The system wants to buy on the close
- The system will exit at the following day's open if the portfolio is up at the open, otherwise it will to hold until the following day's close, when it will repeat steps 1 through 5
I'd like to both backtest the system (I've backtested it previously in Excel/VBA) and run it in real-time in Amibroker. I'd be grateful for any insight as to whether the weighting scheme (both the inverse-volatility-based weighting, and the beta adjustment) is doable in Amibroker, and if so, how complex a program I'd be looking at. The rest of the system seems relatively straightforward.
In case steps 3 and 4 above were not clear, here's a little more detail. After finding WL1, WL2, WS1, and WS2, I'd like to form two time series of historical returns. The first time series take the historical returns of the two long stocks and combines them using WL1 and WL2 (i.e., long portfolio, PL = WL1*R1 + WL2*R2, where R1 and R2 are the time series of returns for long stock 1 and 2, respectively). The second does the same for the short stocks using WS1 and WS2. Then given the two portfolios, PL (long) and PS (short), I want to find the beta of PL to PS. Finally, I want to have the ultimate portfolio, P, to be as follows: P = PL - B*PS (where B is the beta of PL to PS). The final weights with the beta included would be:
WL1 = IVL1/(IVL1 + IVL2)
WL2 = IVL2/(IVL1 + IVL2)
WS1 = B*IVS1/(IVS1 + IVS2)
WS2 = B*IVS2/(IVS1 + IVS2)
(But, of course, one needs to find the weights sans B first in order to find B.) Would be grateful for any pointers as to how to go about implementing this, if it's indeed possible.
Regards,
Ray
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