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Equal Volatility Sizing

by clonex, 2099 days ago
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This Script MM is constructed for rebalancing your portfolio. When you buy in one day all of your assets MM this script works:

Allocations are based on the observed volatility of
each asset over the recent past for a portfolio of stocks and bonds. This concept can easily be extended to a
universe of any size.Specifically, the allocations are adjusted at each monthly rebalance period so that each
asset contributes the same 1% daily(Targeted_Volatility) volatility to the portfolio, to a maximum of 100% exposure.
The allocation to any asset is calculated as follows:
With n assets, the allocation equals:
1/n * 1% / [observed volatility of the asset over the past 60 days(Period_Stddev)], < 1 / n
Example: If there are 10 assets, and observed volatility of asset A is 0.8% then
allocation to asset A = 1/10 * 1% / 0.8% = 10% * 1.25 = 12.50% but
12.5% > 1 / 10 so allocation is truncated to 10%.

Period_Stddev: Period of Standard Deviation
Percentage_Invested: If you use 100% of your money then set 100 , if you use 80% set 80
Targeted_Volatility: On day Volatility: 1 = 1%; 2= 2%, etc.

You can optimize all paramaters. This script can improve performance your TAA strategies.
Idea comes from: http://02f27c6.netsolhost.com/papers/darwin-adaptive-asset-allocation.pdf


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Type: Advanced Money Management

Object ID: 1263


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