Please state the pros and cons of portfolio trading. - page 2
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The main thing is not to misjudge the risks. Otherwise, there are only pluses.
The main thing is not to misjudge the risks. Other than that, it's a win-win.
How to choose which Expert Advisor to put on the chart?
>> how do you choose which Expert Advisor to put on the chart?
There should be an "all in one" rather than changing experts like gloves. ;)
The portfolio diversifies, i.e. it reduces risk. This reduces all risks at the same time - the risk of losing a lot and the risk of earning a lot.
I.e. in a general sense, the portfolio is neutral, there are no pluses or minuses. However, depending on personal priorities, its properties can be seen as a plus or a minus.
Vince seems to have covered the advantages and disadvantages of the portfolio in some detail. I haven't had time to look at them in detail.
>> yeah, that's right - I need to see the best f-rings, too.
look look look... have you tried mine? or is it all the same?
look look look... Did you at least try mine? Or is it "too much"?
>> that, too! ;)
The portfolio diversifies, i.e. it reduces risk. This reduces all risks at the same time - the risk of losing a lot and the risk of earning a lot.
That is, in a general sense, the portfolio is neutral, there are no pluses or minuses. However, depending on personal priorities, its properties can be seen as a plus or a minus.
You're wrong, timbo, there are pluses!
The topic has already been discussed here.
Suppose, for clarity, we have a profitable TS and several non-correlated instruments, the yields of which are comparable. Let's consider the case of working with one instrument. The income curve (RC) can be represented as a straight line drawn through it using the method of least squares. Then the income of TS is proportional to the slope tangent of the straight line and the risks are proportional to the dimensionless value equal to the ratio of the standard deviation of QD points from this straight line to the amount of capital invested in this instrument. Suppose, according to the chosen MM, the risk level of R% is acceptable for us.
Now divide our capital that traded on one instrument into n equal parts by the number of all instruments. Then the return of each instrument will decrease n times, risks will remain the same and not correlated with each other. For such a portfolio, the total return will be additive and equal to the return on capitalization of a single position, and the standard deviations of QD for each instrument will add up as random variables, and in first approximation equal to the square root of the sum of their squares, which for aggregate risk will give the estimate R%/SQRT(n) (see above definition of risk). But, according to the adopted MM, we can assume risks of at least R%, which allows us to increase the capitalisation of the portfolio over the original SQRT(n) times! The return, in its turn, is proportional to the position capitalization (to a first approximation), therefore it can be stated that dividing the capital between n non-correlated instruments without increasing the risk we increase the return of the total position as the root of n times.
This is what the comparison of equity obtained for one instrument looks like - the red line and for the portfolio consisting of 100 instruments - the blue line (fig. left) and 10 instruments - the right one with the same equity. It is evident that risks for the portfolio made up of a larger number of instruments are markedly lower, which, when fixed, is equivalent to a proportional increase in profitability.
Thus, distribution of initial capital among the set of instruments in the portfolio allows us to increase the profitability at the root of the number of instruments as compared to the work with one instrument.
So, the distribution of the initial capital on a set of instruments in the portfolio, allows to increase the profitability at the root of the number of instruments, as compared to working on one instrument.
Generally speaking, returns are a function of risk. That said, the correlation is direct. By reducing risk, which is the goal of portfolio investing, you reduce profit as well. There may be many special cases that would be exceptions to this rule, but the general rule will not change. No one has ever disproved the efficient market theory. Even on your graph you can see that the profit of one instrument can be higher than the profit of the portfolio.
There are strategies that give profit without any risk at all - arbitrage strategies, a pack (portfolio) of such strategies will definitely increase profit, just by increasing the number of trades, while the risk will also be zero, but this is also only an exception to the rule. These are such tasty sweets that one may consider that they do not exist.