Roberto Anzellotti @IlMatematico: "HOW TO BUILD A POPULAR..."

Italy

Edited

HOW TO BUILD A POPULAR INVESTOR TEAM USING DIVERSIFICATION As explained several times, diversification allows you to reduce the risk of an investment and reduce the volatility of your portfolio. Today in this post we will try to apply diversification to create a team of Popular Investors that makes the portfolio as low-volatility as possible. Using Copytrading in your investment strategy allows you to: 1-> Diversify your portfolio across different asset classes, similar to ETFs, bonds, or equity funds. 2-> Delegate to other investors in areas where you lack expertise. We won’t discuss how much of your portfolio should be allocated to Copytrading, as it's a personal decision based on individual goals and beyond the scope of this post. Coming to talk about copytrading, more than once we have had the opportunity to say precisely from a diversification perspective, that it is preferable to divide the capital destined for copytrading among several Investors, rather than focus on a single investor; but choosing a balanced team of popular investors must be done with accuracy and intelligence. Today we set ourselves the goal of creating a team of 5 investors that minimizes volatility while still trying to have the best possible performance. [The users named in this post are just examples, they are not suggestions on who to copy. Choose whoever is right for you!] Let's get started! To diversify properly we will rely on the type of strategy that eToro assigns to each investor. We will create teams of 5 investors trying to assemble PIs with different strategies in an attempt to find investors who use decorrelated strategies. The strategies with which eToro classifies its investors are the following: #️⃣ Value: is a strategy that involves buying stocks or assets that are undervalued by the market, based on their intrinsic value #️⃣ growth : buying stocks or assets of companies that are expected to grow at an above-average rate compared to the market #️⃣ income: designed to generate income regularly #️⃣ long short: strategy that involves entering both long and short multi strategy #️⃣ momentum: Focused on buying assets with strong growth to exploit the positive moment #️⃣ Macro: Based on macroeconomic analysis #️⃣ Market Neutral: which adopts edging strategies to earn both in the case of growing markets and in the case of crisis and in any case able to mitigate the risk #️⃣ Event Driven: Aimed at exploiting imbalances due to extraordinary situations or pricing errors #️⃣ Diversified ETF : strategy that invests primarily in well-differentiated ETFs #️⃣ Quant: uses mathematical models, algorithms, and statistical techniques to create trades, often using large datasets and data-driven decisions #️⃣ Multistrategy: investor who mixes different strategies Let's go and see the graph of the post that contains my performances of the last 5 years and compares them with 3 teams of Popular Investors, assembled with different criteria and purposes. To have a reliable track record, all the selected Popular Investors have been on the platform for at least 5 years. The first graph, to use as a reference, is mine, where a return of more than 320% in 5 years (cagr 35%) is highlighted, beta 1.09 and alpha 1.59. Really not bad 😉 The second chart puts together me, @rubymza (Growth), @thomaspj (Macro), @celesh (Income) and @MercedesSotelo (Quant). If you had started copying this team 5 years ago, you would have had a return of 185% (cagr 24.20%) but you would have had a beta of only 0.74 and an alpha of exactly 1. With a beta of 0.74 it is a nice step forward towards low volatility, but I think we can do better. Second attempt with the third chart: me, @JeppeKirkBonde (Value), @MarceloMosteiro (income), @Anders_ (Long/short) and @vincenzost (Momentum). Here we have fireworks with a result of +410% (cagr 40%), but our goal of having low volatility has completely failed with a Beta of 1.24 For the third attempt I tried a team with me, @celesh (Income), @emfasciani (Quant), @MSilkaitis (Long/short) and @campervans (Macro). Final result 217% (cagr 27%) with a fantastic beta of 0.53 and an alpha of 1.43. A great example of a portfolio that beats $SP500 with half the volatility! Ok, here we go! This is a great group of decorrelated Popular Investors that generates great profits with almost half the market volatility. Obviously for these tests we used past data, so the performances are meaningless, but I hope that the idea behind it can be a good example of how to assemble a low volatility PI team by choosing Investors with a proven backlog and diversified strategies. I am @IlMatematico, and through my algorithms, I strive to extract value from the markets. Add me to your watchlist to stay updated on all my news and movements on $SPX500 ,$NSDQ100, $BTC and other Cryptos! Post created thanks to the data you can retrieve from the sites: bullaware.com pi-screener.com