Sunday, March 13, 2011

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

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

    'MO'    'AMGN'    'BCR'    'BDX'    'CVS'    'CPB'    'ED'    'FDO'
    'GIS'    'HRL'    'JNJ'    'K'    'KMB'    'LH'    'MKC'    'MCD'
    'PEP'    'PG'    'RAI'    'SO'    'WEC'
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 10% (due to the portfolio growth in the last month and because we have added a new stock, ‘CPB’, to the portfolio composition).
Regarding the performance, over the last year (52 weeks), the strategy attained a volatility of 10% (versus 16% of the S&P 500).

The weekly 95%-VaR was 2.4% (versus 4.2% of the S&P 500).

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

The last year annualized Sharpe ratio of the low vol strategy was 1.53 (after proportional transaction costs of 40 bps was discounted). On the other hand, the SR of the S&P 500 was 0.90 over the same period.

Finally, the correlation of the low vol strategy with the S&P 500 along the last 52 weeks was 84%.

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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