Sunday 21 November 2010

Leveraged Long/Short Portfolio

It is possible to achieve Alpha by having a leveraged portfolio. There are several ways: Maintain 1.5x leverage throughout, maintain 2x leverage and having a dynamic allocation. I've even included brokerage charges of 1% to buy and another 1% to sell. I've included borrowing costs of 5% for leveraging.

There are certain points where shorting is implemented. This is necessary because a leveraged portfolio can turn to zero in a bear market.

The results are above. The dynamic method works best. The devil is in the details. Another Eureka moment.

No comments:

Post a Comment