FX Quant 11 / Options Quant Combined

You might consider combined trading of FX Quant 11 and Options Quant programs to diversify trading. Below are given the hypothetical composite equity curves and performance statistics of the FX Quant 11 and Options Quant program. They are solely given as an illustration of trading program combined performance.

To take advantage of diversification and decreased drawdowns, the combined strategy trades 50% Fx Quant 11 + 50% Options Quant. See the calculation under the FX+Options Quant tab in this Excel table.

(Note the logarithmic scale for VAMI)

 

Performance Statistics

Strategy Returns (Before Performance Fees)

Test period

Jan/1999 - Oct/2008

Net profit on fixed capital, with/ without monthly profit reinvesting

534.0% / 187.3%

Sum of positive/ negative monthly rates of return - ROR (gross gain / gross loss)

191.6% /(4.3%)

Compounded average annual ROR

20.66%

Growth of $1,000, compounded monthly (fees not deducted!)

$6,339.7

# Positive months / average positive ROR

110 / 1.74%

# Negative months / average negative ROR

8 / (0.53%)
Kurtosis & skewness of monthly RORs

4.31 / 1.47

Percentage of positive months

93.2%
Ratio avg. positive / avg. negative monthly ROR

3.27
Max. # of consecutive positive/negative months

38 / 2
Monthly Profit Factor (ratio gross profit to gross loss)

45.02

Risk measures
Annualized standard deviation of monthly RORs

4.99%
Annualized downside deviation (MAR = RF ROR = 3% per annum)

0.84%

Sharpe Ratio, annualized (RF rate of return 3.0% per annum)

3.54
Sortino Ratio, annualized (below RF rate 3%)

20.98

Calmar Ratio, for the life of trading

7.03
Treynor Ratio, relative to the S&P 500 Index

279.16%
Strategy Alpha relative to the S&P 500 Index, annualized

20.71%
Jensen's Alpha relative to the S&P 500 Index, annualized

17.32%
Active premium relative to the S&P 500 Index, annualized

23.05%

Worst drawdown depth / duration (month end to month end)

(2.94%) / Jul.-Sep. 99

Worst peak-to-valley (intramonth) drawdown

N/A

Longest recovery period (intramonth)

3 months
Correlation to the S&P 500 Index

(0.063)

FX Quant vs. Options Quant

  FX Quant 11 Options Quant
Advantages - Excellent risk adjusted returns

- Very large positions and accounts can be traded without performance degradation

- Backtesting is 100% objective, as it is performed with spot Forex prices (roll-over/interest on open positions is not taken into account)

- Trades only once a day, around NY close (21:00 GMT)

- If needed, compounding (profit reinvesting) can be performed month (even daily)

- Earn interest on unused account margin

 - Small variability of returns and superior risk-adjusted returns

- Excellent Sharpe, Sortino and Sterling ratios can be achieved

- Trades only 1-5 trades per month

- 3-Month US T-Bills can be hold in the same account (as margin collateral); Interest adds to trading profit.
Disadvantages - Somewhat lower winning months percentage - Liquidity can be problematic when large positions are traded; trading very large accounts is difficult.

- Backtesting is not that accurate as with FX Quant

- Profit can not be reinvested more frequently than once per year (unless the account is large)

Each trading system has its advantages and disadvantages, but trading both systems generally improves the risk-adjusted return. This means that the combined leverage can be increased, and FX Quant's annual ROR can be achieved at lower risk/ drawdown.

To diversify further, you can consider a stock portfolio trading system: Equity-Quant.com.

Trading can be further diversified by combining the Equity-Quant.com's EQ-50 quantitative trading system with the FX Quant 11 and/or Options Quant trading program - open this Excel table and click on the "FX Quant 11 & Equity Quant 50" tab.

Trading ES options along with Forex is also important for the following reason. When the S&P 500 Volatility Index (VIX) is below 15%, we can temporarily decrease the Options Quant allocation and allocate more funds to FX Quant 11. The opposite also holds true. As VIX rises above 15% we can increase the Options Quant allocation again.

Hypothetical Composite Performance Disclaimer

THIS COMPOSITE PERFORMANCE REPORT IS HYPOTHETICAL AND THESE TRADING ADVISORS HAVE NOT TRADED TOGETHER IN THE MANNER SHOWN IN THE COMPOSITE. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY MULTI-ADVISOR MANAGED ACCOUNT OR POOL WILL OR IS LIKELY TO ACHIEVE A COMPOSITE PERFORMANCE RECORD SIMILAR TO THAT SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD AND THE ACTUAL RECORD SUBSEQUENTLY ACHIEVED.

ONE OF THE LIMITATIONS OF A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD IS THAT DECISIONS RELATING TO THE SELECTION OF TRADING ADVISORS AND THE ALLOCATION OF ASSETS AMONG THOSE TRADING ADVISORS WERE MADE WITH THE BENEFIT OF HINDSIGHT BASED UPON THE HISTORICAL RATES OF RETURN OF THE SELECTED TRADING ADVISORS. THEREFORE, COMPOSITE PERFORMANCE RECORDS INVARIABLY SHOW POSITIVE RATES OF RETURN. ANOTHER INHERENT LIMITATION ON THESE RESULTS IS THAT THE ALLOCATION DECISIONS REFLECTED IN THE PERFORMANCE RECORDS WERE NOT MADE UNDER ACTUAL MARKET CONDITIONS AND, THEREFORE, CANNOT COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FURTHERMORE, THE COMPOSITE PERFORMANCE RECORD MAY BE DISTORTED BECAUSE THE ALLOCATION OF ASSETS CHANGES FROM TIME TO TIME AND THESE ADJUSTMENTS ARE NOT REFLECTED IN THE COMPOSITE.