3 different ways to use Portfolio Optimizer for stocks
The Portfolio Optimizer for stocks provides a screamingly fast way to maximize returns. Here is how various types of users use it :
- Long-term investors : These investors typically build a portfolio of largecap stocks with good credit ratings and don’t sell these stocks for several years. Here is a sample portfolio of 10 Largecap Indian stocks. Over the last 22 months this portfolio returned +78% for a maximum drawdown risk of -8%.
- Active investors : These investors are actively screening various sectors for stocks that are outperforming. They constantly screen the 72 different popular portfolios available on Spotalpha to identify the top performing stock in each sector. Here is a sample portfolio of 15 best performing stocks from 10 different industries built by screening the various sectoral portfolios. Over the last 16 months, this portfolio has returned +145% at a maximum drawdown risk of -5%.
- Intra-day traders : These investors use teh portfolio optimizer primarily for pair trading strategies. For example to identify which private sector banks have low correlation and therefore can yield good returns in pair trading. If you are unfamiliar with pair trading – it is a trading practice where (say, the futures contract of) one security is purchased and the (futures contract of) another is sold (short selling) at the same time. Since the two securities are correlated (for example banks) the risk is not too high as the trade is well hedged. Further, not holding positions overnight reduces risk and therefore the trade can be leveraged intra-day to amplify returns while minimizing risk.
Note: Users are constantly coming up with different techniques of using spotalpha (hedging, Bull-call spreads, e.t.c). Please use the comments section below if you want to share your trading technique (and to get some more good karma).
Now go ahead and make some profits. Power to you!