The Basics
The Hedge optimizer calculate many different iterations of Static Models, Moving Average Cross Models, and Moving Average Filter Models , then displays the resulting calculations in the spreadsheet.
Once in the spreadsheet, you can sort and rank the different outcomes/iterations and find the best strategy to deploy.
Common Inputs
All three hedge optimizers have two common inputs:
- Family – List of long securities
- Hedges – List of short securities
Each model detail describes how they are incorporated into the optimizer
Static Model Optimizer
A static model is a portfolio with predefined weighting of 2, 3, or 4 securities.
50% SPY - 50% TLT - rebalanced monthly.
20% BND - 70% VTI - 10% SHY - rebalanced annually
The Static Model Optimizer will vary the weightings and securities defined by the parameters. Each member of the “Family” will be paired with each member of the “hedges.”
Example
Family = SPY, QQQ, DIA
Hedges = VMMXX
2 Positions Radio Button = Checked
Only 60% checkbox is checked
Optimizer will produces the following monthly rebalanced portfolios
QQQ-60 | VMMXX-40
SPY-60 | VMMXX-40
DIA-60 | VMMXX-40
A common use of the hedge optimizer is to create a “Family” of long positions and a “Hedge” of short positions, then optimize for a 90/10 pairing. The hedge optimizer will mix each 90%/10% pair of the long positions with each of the short positions.
Moving Average Cross
This optimizer will iterate all defined short and long moving average pairs, then create portfolios of trading between Family and Hedges on the Moving Average crossing.
Example
Family = SPY, QQQ, DIA
Hedges = VMMXX
Short Moving Average Range = 10-15
Long Moving Average Range = 50-100
Optimizer will produce the following 918 portfolios:
SPY/VMMXX - Trade on 10 day crossing 50 day
SPY/VMMXX - Trade on 11 day crossing 50 day
SPY/VMMXX - Trade on 12 day crossing 50 day
SPY/VMMXX - Trade on 13 day crossing 50 day
.....
DIA/VMMXX - Trade on 10 day crossing 95 day
DIA/VMMXX - Trade on 10 day crossing 96 day
DIA/VMMXX - Trade on 10 day crossing 97 day
.....
Moving Average Filter
This optimizer will iterate all strategies defined by combining all variations of the Moving Average Filters Range (increment by 0.1%) and Moving Average Range. Learn more about the moving average filter here: Moving Average Filter
Example
Family = SPY, QQQ, DIA
Hedges = VMMXX
Short Moving Average Range = 0%-1%
Long Moving Average Range = 50
Optimizer will produce the following 918 portfolios:
SPY/VMMXX - Trade when SPY price is 0% above/below 50 day Moving average
SPY/VMMXX - Trade when SPY price is 0.1% above/below 50 day Moving average
SPY/VMMXX - Trade when SPY price is 0.2% above/below 50 day Moving average
SPY/VMMXX - Trade when SPY price is 0.3% above/below 50 day Moving average
.....
DIA/VMMXX - Trade when DIA price is 0% above/below 50 day Moving average
DIA/VMMXX - Trade when DIA price is 0.1% above/below 50 day Moving average
DIA/VMMXX - Trade when DIA price is 0.2% above/below 50 day Moving average
.....
