The last post demonstrated that far from being a world-beating, absolutely amazing strategy, that Harry Long’s Structural “Arbitrage”, was in fact a very risky strategy whose drawdowns were comparable to that of the S&P 500 itself during the financial crisis. Although the annualized returns were fairly solid, the drawdowns themselves were in the realm of unacceptable. One low-hanging fruit that came to mind to try and improve the performance of the strategy is to trade the equity curve of the strategy with an SMA. Some call the 200-day SMA (aka 10 month) strategy the “Ivy” strategy, after Mebane Faber’s book, that I recommend anyone give a read-through. In any case, picking up where the last post left off, I decided to use the returns of the strategy using the 60/40 non-adjusted TLT (that is, the simple returns on the close of TLT)-XIV configuration.
Great Article to start from and learning to understand risk management. Please Share your ideas. Thank you.
