{"id":2021221,"date":"2015-04-30T18:03:31","date_gmt":"2015-04-30T12:33:31","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2021221"},"modified":"2015-04-30T18:03:31","modified_gmt":"2015-04-30T12:33:31","slug":"long-short-trend-following","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2015\/04\/30\/long-short-trend-following\/","title":{"rendered":"Long-Short Trend Following"},"content":{"rendered":"

Prior Work<\/h3>\n

We had discussed<\/a> the SMA On\/Off Switch and its ability to escape the worst days. Based on this finding, we setup a Tactical Theme<\/a> that would go long NIFTYBEES and JUNIORBEES if the CNX 100 index is trading above its 50-day SMA and move into LIQUIDBEES otherwise.<\/p>\n

What if, we could go long and<\/em> short?<\/p>\n

Naive Long-Short<\/h3>\n

Here’s how going long above 50-DMA and short below 50-DMA on the CNX 100 since 2001 compares:<\/p>\n

\"CNX
\nLong-Short SMA (black), Long-Only SMA (red<\/span>) and Buy & Hold (green<\/span>)<\/small><\/p>\n

It looks like going both long and short is not significantly better than a long-only tactical strategy.<\/p>\n

Long-Short with Volatility<\/h3>\n

But what if, we add a volatility metric into the mix? The logic here is that corrections are preceded by a bout of volatility. So if you go short if either or the volatility signal or the 50-DMA indicates a negative bias and long otherwise:<\/p>\n

\"CNX
\nLong-Short SMA w\/ Volatility (black), Long-Only SMA w\/ Volatility (red<\/span>), Long-Only SMA (green<\/span>) and Buy & Hold (blue<\/span>)<\/small><\/p>\n

It looks like there is significant alpha in the combination approach.<\/p>\n

Long-Short NIFTY and BANKNIFTY<\/h3>\n

NIFTY returns since 2001:
\n\"CNX<\/p>\n

And the same for the BANK NIFTY since 2006:<\/p>\n

\"CNX<\/p>\n

NIFTY and BANKNIFTY since 2011:<\/p>\n

\"CNX<\/p>\n

\"CNX<\/p>\n

NIFTY and BANKNIFTY since 2013:<\/p>\n

\"CNX<\/p>\n

\"CNX
\nLong-Short Combo (black), Long-Only Combo (red<\/span>), Long-Only Tactical (green<\/span>) and Buy & Hold (blue<\/span>)<\/small><\/p>\n

Conclusion<\/h3>\n

It appears that there is long-term alpha in using a combination of volatility and 50-DMA to implement a long-short strategy. To put this to test using real-time data, we have created a theme to make it easy for you to follow along: Trend Long-Short<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Prior Work We had discussed the SMA On\/Off Switch and its ability to escape the worst days. Based on this finding, we setup a Tactical Theme that would go long NIFTYBEES and JUNIORBEES if the CNX 100 index is trading above its 50-day SMA and move into LIQUIDBEES otherwise. What if, we could go long … <\/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":[3411,3391,2761,2541],"class_list":["post-2021221","post","type-post","status-publish","format-standard","hentry","category-investing-insight","category-your-money","tag-banknifty","tag-nifty","tag-quant","tag-theme","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2021221","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=2021221"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2021221\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2021221"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2021221"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2021221"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}