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There was a good feature on correlation in adtrading a couple of years ago.
It may still be at www.adtrading.com/adt24/correlat.hts. In short the
diversified portfolio produced after trying to reduce correlation in this
article arrives at:
C,BO,W,LC,PB,KC,OJ,CT,HG,GC,PA,CL,HU,BP,CD,DM,JY,US,TY,ED,SP,YX
22 commodities containing 4 currencies, 3 interest rates and 2 energies, 1
oilseed, 2 grain, 2 meat, 1 coffee, 1 oj, 1 fibre, 1 base metal, 2 precious
metals, 2 stock indexes...
But still, I don't see why we have to stick to US based commodity
exchanges...Surely this list could be improved by adding LME base metals,
TCE Rubber, Commex Malaysia Palm Oil, TGE Azuki Beans, Kanex Broilers,
Yokohama Silk etc...
In the end, while keeping strict limits on the concentration of your risk in
any particular commodity grouping why not let the best performing markets to
trade pick themselves by measuring their response to your system. Take new
trades in order of best-to-worst sharpe ratio of your market-systems?
Regards,
Robert
-----Original Message-----
From: Cab Vinton [mailto:cvinton@xxxxxxxxxxx]
Sent: 27 March 2000 20:08
To: L_Omega
Subject: RE: Long Term Systems
> If you really want a
> secure consistent return in the future you have to accept "sub-optimal"
> returns in back-testing, ie you have trade a universe of markets which is
> far more diverse than these 20 (and preferably far bigger).
Robert,
If you were to diversify a $100k account, what would you suggest then?
Do you have a standard technique you use? Market selection is a critical
variable & I don't think it gets the attention it deserves ...
As an aside, I'd be interested to hear if folks have ever discovered any
discrepancies between market-to-market correlations and correlations between
the equity curves of the same system(s) applied to those markets.
It seems to me that the latter is more important for diversification
purposes,
though it's possible that price-based vs. equity-curve-based correlations
are
more or less identical.
Cheers,
Cab Vinton
cvinton@xxxxxxxxxxx
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