Quanist Investment

Portfolio rebalance almost always produces better Sharpe ratio than those who don't. Simulator This simulates the investment restuts of a SPY/Cash portfolio rebalanced with different thresholds. The portfolio starts with $1,000 and SPY initial price is $400.Adjust the cash return to represent short-term bond yield. Cash Ratio: % SPY Ratio: % Mean Monthly Return: % Monthly Return Standard Deviation: % Cash Mean Monthly Return: % Investment Duration: year(s). Choose Rebalance Frequency: Monthly Quarterly Semi-annually Annually Rebalance Threshold: %. Simulte Results Comparison Total Returns No-rebalanced: 0 % ALL Stock Portfolio: 0 % Rebalanced By Period: 0 % Rebalanced By Threshold: 0 % Mean Monthly Return No-rebalanced: 0 % ALL Stock Portfolio: 0 % Rebalanced By Period: 0 % Rebalanced By Threshold: 0 % Monthly Return Standard Deviation No-rebalanced: 0 % ALL Stock Po...

I define threshold rebalancing as this: when the market tracking index fund's value is different than the target and the diference is bigger than the threshhold, I rebalance the portfolio. If the stock position has more value, I sell stock and buy otherwise in order to achieve the target allocation ratio. This means the lower the threshhold or the more the stock price flucturates, the more frequent we rebalacnce our portfolio, Simulator This simulates the investment restuts of a SPY/Cash portfolio rebalanced with different thresholds. The portfolio starts with $1,000 and SPY initial price is $400.Adjust the cash return to represent short-term bond yield. Cash Ratio: % SPY Ratio: % Mean Monthly Return: % Monthly Return Standard Deviation: % Cash Mean Monthly Return: % Investment Duration: year(s). Threshold 1: %. Threshold 2: %. Threshold 3: %. Threshold 4: %. Simulte Results Comparison Total Returns No-rebalanced: 0 % Rebalanced Monthly: 0...

No, the frequsncy of rebalancing has no significant effects on the investment results with a sefined cash and stock ratio. Cash here is a proxy for short-term bond yields with no fluctuation return rates. Furthermore, investment portfolios rebalanced periodically does not have better Sharpe ratios than the non-rebalanced one. Simulator This simulates the investment restuts of a SPY/Cash portfolio rebalanced with a defined cash ratio monthly, quarterly, semi-annually and annually. The portfolio starts with $1,000 and SPY initial price is $400.Adjust the cash return to represent short-term bond yield. Cash Ratio: % SPY Ratio: % Mean Monthly Return: % Monthly Return Standard Deviation: % Cash Mean Monthly Return: % Investment Duration: year(s). Simulte Results Comparison Total Returns No-rebalanced: 0 % Rebalanced Monthly: 0 % Rebalanced Quarterly: 0 % Rebalanced Semi-annually: 0 % Rebalanced Annually: 0 % Mean Monthly Return ...

The stock market generates a better return than cash but is riksier than cash. One perfomance metric is the Shrpe ratio which measure the return per unit of risk. The unit of risk is the standard deviation of stock return. The following app helps us visualize how a cash balacnced portfolio affects the the investment portfolio. Simulator This app compares the investment results of a all SPY portfolio and a SPY/cash balanced one. Assume cash has both the return rate and return rate standard deviation are 0%. Cash Ratio: % SPY Ratio: % SPY Mean Monthly Return: % SPY Monthly Return Standard Deviation: % Investment Duration: year(s). Simulte Performance Comparison Total Return All SPY Portfolio: 0 % Cash Balanced Portfolio: 0 % Mean Return All SPY Portfolio: 0 % Cash Balanced Portfolio: 0 % Return Standard Deviation All SPY Portfolio: 0 % Cash Balanced Portfolio: 0 % Sharpe Rations Result The all SPY portfolio has a h...

The Sharpe Ratio is a metric that could represent the perfomance of a investment portfolio better than just its mean return, because the Sharpe ratio takes into account the risk of the portifolio. 

Sharpe ratio is used to measure the portfoilo mean excesive return per unit of risk. Risk means the standard deviation of return. Excessive return is the portfolio return minus the risk free rate. Formula looks like this: (mean portfolio return - risk free rate)/standard deviation of returns Why use excess return in the formula? it makes sense to compare the performance excess of the risk free rate, because if the portfoilio returns can't beat even the risk free rate, why would anybody invest in the portfolio, when they can just invest in the risk free rate bearing instruments like US treasures. For a portfoilio of short term bonds, its Sharpe ratio would approach infinity if we don't account for the risk free rate, For example, a 3-year bond with a yield of 2%. The formula of Sharpe ratio without taking into account of the risk free rate. 2%/0 which is infinity Sharpe ratio formula explai...

A leveraged ETF can move in price 2 tims or 3 times the regular ETF. For example, SPXL's price change 3 times of SPY daily in theory. I want to know if a 2 times leveraged ETF has 2 times the mean and 2 times the standard deviation of the regular ETF. I also want to find its Sharpe ratio compared to the 1 time ETF. Why do I want to know the Sharpe ratio? I found the lower the Sharpe ratio, the riskier the portfolio, so I want to kwow if it's worth the risk to invest in leveraged ETF. Suggested Readings: How Sharpe Ratio Affects Retirement Fundsflucturation Visualizing Stock Price Movement With Different Return Per Unit of RIsk (Sharpe Ratio) Simulator Enter the following data for the regular, 1X Bull Market ETF Daily Risk Free Rate: % Daily Mean Return: % Daily Return Standard Deviation: % Terms: Simulate 1X Bull Sharpe Ratio: 0 2X Bull Sharpe Ratio: 0 3X Bull Sharpe Ratio: 0 1X Bull Mean Daily Return: 0 % 2X Bull Mean Dail...

I made a simulator to help us visualize how  investment portfolio values change based on different Sharpe Ratio in this blog post.  Now, I want to if how much the Sharpe ratio can affect our retirement portfolio from which we withdraw. What about retire with just government bonds? Suppose I hold 30 year US Treasury Bonds with a yield of 4%. The face value of the bonds is $1,000,000, I can receive $1,000,000 X 4% = $40,000 every year to cover my daily expenses for 30 years without any risk. This retirement portfolio has no value flucturation and I will not worry about any stock market turmol.  Usually, bonds have just enough returns to cover inflation, so all-bond portfolio may not be the bset for retirement. How about with a balanced portfolio? With a balanced portfolio, the return should be better than a 100% bond one. But a portfolio mixed with stocks may flucturate in price, which may cause problems if the flucturation is too big...