Sunday, March 13, 2011

Spain weekly portfolio recommendation (from 14 to 18, March 2011)

The low volatility portfolio recommended for this week is (ticker notation):

  'ACS'   'EBRO'   'ENG'    'IDR'    'ITX'    'REE'   'TEF'
Although I recommend a portfolio composition every week, it is desirable to maintain this composition for four weeks, and then rebalance with the new composition.
The turnover respect to previous composition is 2% (due to the portfolio growth in the last month and because the portfolio composition is the same).
Regarding the performance, over the last year (52 weeks), the strategy attained a volatility of 17% (versus 28% of the IBEX 35).

The weekly 95%-VaR was 4.0% (versus 5.2% of the IBEX 35).

See this post for the details about the back-testing.

The last year annualized Sharpe ratio of the low vol strategy was 0.41 (after proportional transaction costs of 40 bps was discounted). On the other hand, the SR of the IBEX 35 was -0.07 over the same period.

Note the negative sign in the SR of the IBEX 35, mainly due to the bad performance over the last week.

Finally, the correlation of the low vol strategy with the IBEX 35 along the last 52 weeks was 91%.

Again, all these performance results are consistent over time.

I have omitted more details regarding the performance measures because they are roughly the same as those in the previous posts.

As a summary, the low vol portfolio dominates the market index, showing it attains consistently better risk-adjusted returns.

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