Adaptive Asset Allocation Butler V1.3 AMM

Inspired by Butler (2012) Adaptive Asset Allocation: A Primer (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2328254)

"The paper addresses flaws in the traditional application of Modern Portfolio Theory related to Strategic Asset Allocation. Estimates of parameters for portfolio optimization based on long-term observed average values are shown to be inferior to alternative estimates based on observations over much shorter time frames. An Adaptive Asset Allocation portfolio assembly framework is then proposed to coherently integrate portfolio parameters in a way that delivers substantially improved performance relative to SAA over the testing horizon."

- Top5 out of 11 diversified assets selected by 6m Momentum
- Minumum Variance Optimization based on 6m Covariance matrix
- Volatility Targeting, optionally leverage

Asset classes: U.S.Stocks, Internaonal REIT, European Stocks, U.S.Intermediate Treasuries, Japanese Stocks, U.S.long term Treasuries, Emerging Market Stocks, Commodites, U.S. REITs, Gold (needs non-public data for full backtest)

Paper Results with 8% volatility target, weekly rebalancing:
- CAGR 16.91%
- Sharpe 2.15
- MaxDD -9.56%
- MAR 1.77

V1.3:
- Finished Excel output for detailed analysis, see comments in QS language part
- Added Dynamic Asset list, e.g. ETF after inception date, MFs / indices before (12 ETF / 12 MFs), see comments in QS language part
- Some cleaning and debugging

V1.2:
Update: Most cleaning done, improved price series acuracy before passing to solver

- Moved completely to AMM, code still improvable (bit messy, ok)
- Added Minimum Variance Optimization through MS Solver Foundation (needs some configuration, see gdrive)
- Added Portfolio Volatility Target triggered either by historical or expected volatility
- Added leverage up/down to portfolio volatility target, either by leverage factor or by changing weight constraints
- Added different volatility metrics for visual analysis
- Tweaked Excel and QS output window interface for stats and debugging

Now very stable over parameters, Sharpe up to 1.8, with Volatility <12% and +20% performance level (depending on vola target and leverage).
Hope this is a good foundation to further develop, some ideas:
- Covariance shrinkage and using "crisis" / "bull" moment covariance overlay (good results in Excel)
- Tweak trend indicator, e.g. different lookbacks in bear and bull markets, consider volatility
- Check different asset sets, e.g. more diversity and set weighting constraints depending on market environment

V1.1:
- Changed symbols to 7 mutual funds available in yahoo
- Added further descriptions to AMM code for easier reference and changes

More on our strategies here:
http://www.logical-invest.com

Technical Analysis

• Stop Loss for the N-first Trading Bars only
• Total Power Indicator
• Index of dispersion - Variance-to-Mean Ratio - VMR
• Volatility-based Position Sizing Method with Adjustable Parameters
• Tom Demark -TD- Range Projections
• NSE - Security-wise Delivery Position
• Ulcer Index
• Indicator/Price Value on a Specific Trading Date
• Percent Oversold to Overbought Stocks - Market Breadh Indicator
• Adaptive BuyInd MR_Mom Strategy
• More trading objects...

Fundamental Analysis

• Detect and Display Potential Splits on a Chart
• History of dividend payment for stocks in the US stock market
• NYSE - Corporate Actions
• Equity Valuation
• ADS Business Conditions Index
• Commitments of Traders
• Yale - Crash Confidence Index
• Update the Industry Name of your U.S. Stocks
• Job Creation Index
• Chicago Fed National Activity Index - CFNAI
• More trading objects...