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Up 4% in 3 Days - Five Stocks/Wk, Zero Margin, Fully Hedged


@VG2 When you say ‘long funds’, do you mean long ETF’s as the hedges? Just a little unclear )
I would like to test this, but need to ensure accurate date pre-2008 to run a sim. This could take a few days, but I am on it!


@VG2 In those last few screenshots, I see going short ETFs (IWM/UWM) outperforming going long ETFs (RWM/TWM).


@fiveHedged, I was talking about the charts you showed with IWM/UWM which are long funds.

@PhilD1, one of us is upside down! RWM/TWM are short funds and, according to fivehedged charts above, are not as effective as hedges, at least over the time frame he shows.


OK, sounds like we’re on the same page. I thought by long and short you were referring to the action you take with the hedge, e.g. long = buying RWM, short would be selling IWM.


I thought fivehedged charts were showing BUYING each of the funds, be they long or short funds. In his system on C2 he does not do any shorting. Can you please clarify, fivehedged?


I am long five stocks, with equal dollar value long position in RWM. So eg., if I am long $50k stocks (5 x $10k), I am also long RWM value approx $50k. Hope that makes sense…


I know that, fiveHedged, I am not asking about your system, I am asking about the back tests that you posted above. I had assumed that since you don’t short anything in your C2 system, these charts are also long only Please clarify if the results that you are showing in your charts above for IWM/UWM (long funds) are a result of buying them or shorting them. If they are for buying them, why do you think the results are better than buying the short funds, RWM/TWM?


Reply to @VG2
This might have something to do with a number of factors eg., liquidity, ETF expense ratio’s, or any number of other things - best guesses please.
With all due respect, I am not personally too hung up about why longs are fractionally better/worse than shorts. What matters to me in my trading is that I am able to hedge and protect to a degree against market corrections, when the five-stock long positions can potentially suffer (eg., recent weeks, when the portfolio has held up well)…
Whether I am hedged using IWM, TWM, RWM, Russell Futures, Dow, QQQ, SH, SPY, or whatever - these are just instruments available (mostly liquid) which I am thankful for, as they allow me to avoid naked longs.
The objective is to be able to hedge.


So basically you are saying you can use anything to hedge? I’m a little thrown by that.


I would really help if you would answer my first question, fiveHedged. In THIS thread, for the charts you posted for IWM and UWM, were the results from going long those funds or shorting them?


No, not just ‘anything’. Usually if there is a close correlation (usually above 95%) for the hedging instrument, this would suffice.


I would short IWM or UWM. These are both ETF’s which allow long exposure to Russell2000. Hence to offset my five long stocks, I would trade these particular instruments short, to create a ‘mirror’ for the long [five stock] portfolio.


“I would short IWM or UWM” Still not an answer to question about the charts in this thread. DID you short them to get the results you are showing above? Not WOULD you if you were to use them in your system.

That’s all I’m asking. I know what all these ETFs are and I understand the concept of hedging. However, if one were a really bad stock picker, buying (rather than shorting) a long index fund might be a good hedge. I thought it was possible that’s what you were showing in the charts, where BUYING the long funds offset some bad stock picks, showing a better return than BUYING the short funds as hedges.


With reference to the charts, I wrote there “Ref: Results of test using UWM (2x leveraged Russell 2000) as 50% hedge, vs IWM (1x leveraged Russell2000) as 100% hedge…”

The test was carried out using a sim which allows backtesting using institutional data. I tested using 50% UWM short against the portfolio value (one of the charts), and 100% IWM short against the portfolio value (the other chart). I also posted the RWM results chart based on RWM (which I would trade long, as it is the inverse of Russ1000) as a 100% long.

Hope this helps. Perhaps better to PM me, so we can deal with any questions directly rather than on this forum. Thanks!


No need, you FINALLY answered my question which is all I wanted to know.


It might be less insulting if you didn’t immediately assume people asking questions were idiots. Maybe look back at what they are asking about to see if you could have been clearer. I am done with you.


If there are developers to get angry and bitter at on C2 forums, @fiveHedged is probably one of the last ones that comes to mind. From what I have read the guy has consistently tried to help you understand his strategy.

IMO at the end of the day based on what I have seen here the alpha in the strategy comes from the stock picking on the long side, not the type of instrument he is using to hedge it.


I have no problem understanding his strategy, just the charts he posted in this thread. I had to ask him several times whether or not he was shorting the long funds. Simple question.


I do not assume people rightfully asking questions as sub-intelligent in any way. In fact you come across as quite an intelligent person. I don’t judge. My apologies if I didn’t understand your question fully from the outset. Hope we are good.


Hitting home runs (alpha) is absolutely I would say 90% of the battle - and that is about finding the right stocks, which is largely done through factor-investing using multiple rules/screens and quality data. Risk-management (hedging), although essential is just a mechanism to provide some insurance in case things go badly in the broader market (ie., protect against systematic/market risk), so I just happen to choose RWM as it does the job perfectly fine.

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