{"id":1999591,"date":"2014-08-08T12:43:32","date_gmt":"2014-08-08T07:13:32","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=1999591"},"modified":"2014-09-09T11:55:25","modified_gmt":"2014-09-09T06:25:25","slug":"using-sma-reduce-volatility-returns","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2014\/08\/08\/using-sma-reduce-volatility-returns\/","title":{"rendered":"Using SMA to Reduce Volatility of Returns"},"content":{"rendered":"

Introduction<\/h3>\n

We saw how a CNX 100 50-day tactical investment strategy boosts returns of a naive buy-and-hold strategy (here<\/a>) even while considering trading costs and other friction (here<\/a>.) To visualize how this works, lets have a look at the histogram of daily returns since 2010 (1150 trading days.)<\/p>\n

Naive buy-and-hold<\/h3>\n
\n
\"bh-returns-2010\"<\/a><\/div>\n
\n\n\n\n\n\n\n\n\n\n\n
Daily Returns<\/th>\n<\/tr>\n<\/thead>\n
\n
<= -2%<\/div>\n<\/td>\n
\n
36 days<\/div>\n<\/td>\n<\/tr>\n
\n
<= -1%<\/div>\n<\/td>\n
\n
165 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +2%<\/div>\n<\/td>\n
\n
41 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +1%<\/div>\n<\/td>\n
\n
188 days<\/div>\n<\/td>\n<\/tr>\n
\n
Average<\/div>\n<\/td>\n
\n
+0.04%<\/div>\n<\/td>\n<\/tr>\n
\n
Std. Dev.<\/div>\n<\/td>\n
\n
1.07<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

200-day SMA switch<\/h3>\n
\n
\"200-sma-returns-2010\"<\/a><\/div>\n
\n\n\n\n\n\n\n\n\n\n\n
Daily Returns<\/th>\n<\/tr>\n<\/thead>\n
\n
<= -2%<\/div>\n<\/td>\n
\n
16 days<\/div>\n<\/td>\n<\/tr>\n
\n
<= -2%<\/div>\n<\/td>\n
\n
85 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +2%<\/div>\n<\/td>\n
\n
21 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +1%<\/div>\n<\/td>\n
\n
122 days<\/div>\n<\/td>\n<\/tr>\n
\n
Average<\/div>\n<\/td>\n
\n
+0.07%<\/div>\n<\/td>\n<\/tr>\n
\n
Std. Dev.<\/div>\n<\/td>\n
\n
0.79<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

100-day SMA switch<\/h3>\n
\n
\"100-sma-returns-2010\"<\/a><\/div>\n
\n\n\n\n\n\n\n\n\n\n\n
Daily Returns<\/th>\n<\/tr>\n<\/thead>\n
\n
<= -2%<\/div>\n<\/td>\n
\n
11 days<\/div>\n<\/td>\n<\/tr>\n
\n
<= -2%<\/div>\n<\/td>\n
\n
66 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +2%<\/div>\n<\/td>\n
\n
21 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +1%<\/div>\n<\/td>\n
\n
114 days<\/div>\n<\/td>\n<\/tr>\n
\n
Average<\/div>\n<\/td>\n
\n
+0.09%<\/div>\n<\/td>\n<\/tr>\n
\n
Std. Dev.<\/div>\n<\/td>\n
\n
0.74<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

50-day SMA switch<\/h3>\n
\n
\"50-sma-returns-2010\"<\/a><\/div>\n
\n\n\n\n\n\n\n\n\n\n\n
Daily Returns<\/th>\n<\/tr>\n<\/thead>\n
\n
<= -2%<\/div>\n<\/td>\n
\n
7 days<\/div>\n<\/td>\n<\/tr>\n
\n
<= -2%<\/div>\n<\/td>\n
\n
53 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +2%<\/div>\n<\/td>\n
\n
24 days<\/div>\n<\/td>\n<\/tr>\n
\n
>= +1%<\/div>\n<\/td>\n
\n
110 days<\/div>\n<\/td>\n<\/tr>\n
\n
Average<\/div>\n<\/td>\n
\n
+0.11%<\/div>\n<\/td>\n<\/tr>\n
\n
Std. Dev.<\/div>\n<\/td>\n
\n
0.71<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

Conclusion<\/h3>\n

Even after considering trading costs, impact costs and tracking error, this strategy comes out way ahead of a naive buy-and-hold strategy. Better returns than buy-and-hold with lower volatility and at a low cost!<\/p>\n

You can follow the Theme\u00a0here<\/a>.<\/p>\n

<\/div>\n","protected":false},"excerpt":{"rendered":"

Introduction We saw how a CNX 100 50-day tactical investment strategy boosts returns of a naive buy-and-hold strategy (here) even while considering trading costs and other friction (here.) To visualize how this works, lets have a look at the histogram of daily returns since 2010 (1150 trading days.) Naive buy-and-hold Daily Returns <= -2% 36 … <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471,9],"tags":[2541],"class_list":["post-1999591","post","type-post","status-publish","format-standard","hentry","category-investing-insight","category-your-money","tag-theme","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1999591","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=1999591"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1999591\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=1999591"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=1999591"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=1999591"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}