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Diversification

Rolling Correlations and Applications for Traders and Investors1. Introduction Markets are dynamic, and the relationships between assets are constantly shifting. Static correlation values, calculated over fixed periods, may fail to capture these changes, leading traders to miss critical insights. Rolling correlations, on the other hand, provide a continuous view of how correlations evolve over time, making them a powerful tool for dynamic market analysis. This article explores the concept of rolling correlations, illustrates key trends with examples like ZN (10-Year Treasuries), GC (Gold Futures), and 6J (Japanese Yen Futures), and discusses their practical applications for portfolio diversification, risk management, and timing market entries and exits. 2. Understanding Rolling Correlations o What Are Rolling Correlations? Rolling correlations measure the relationship between two assets over a moving window of time. By recalculating correlations at each step, traders can observe how asset relationships strengthen, weaken, or even reverse. For example, the rolling correlation between ZN and GC reveals periods of alignment (strong correlation) during economic uncertainty and divergence when driven by differing macro forces. o Why Rolling Correlations Matter: Capture dynamic changes in market relationships. Detect regime shifts, such as transitions from risk-on to risk-off sentiment. Provide context for recent price movements and their alignment with historical trends. o Impact of Window Length: The length of the rolling window (e.g., 63 days for daily, 26 weeks for weekly) impacts the sensitivity of correlations: Shorter Windows: Capture rapid changes but may introduce noise. Longer Windows: Smooth out fluctuations, focusing on sustained trends. 3. Case Study: ZN (Treasuries) vs GC (Gold Futures) Examining the rolling correlation between ZN and GC reveals valuable insights into their behavior as safe-haven assets: o Daily Rolling Correlation: High variability reflects the influence of short-term market drivers like inflation data or central bank announcements. Peaks in correlation align with periods of heightened risk aversion, such as in early 2020 during the onset of the COVID-19 pandemic. o Weekly Rolling Correlation: Provides a clearer view of their shared response to macroeconomic conditions. For example, the correlation strengthens during sustained inflationary periods when both assets are sought as hedges. o Monthly Rolling Correlation: Reflects structural trends, such as prolonged periods of monetary easing or tightening. Divergences, such as during mid-2023, may indicate unique demand drivers for each asset. These observations highlight how rolling correlations help traders understand the evolving relationship between key assets and their implications for broader market trends. 4. Applications of Rolling Correlations Rolling correlations are more than just an analytical tool; they offer practical applications for traders and investors: 1. Portfolio Diversification: By monitoring rolling correlations, traders can identify periods when traditionally uncorrelated assets start aligning, reducing diversification benefits. 2. Risk Management: Rolling correlations help traders detect concentration risks. For example, if ZN and 6J correlations remain persistently high, it could indicate overexposure to safe-haven assets. Conversely, weakening correlations may signal increasing portfolio diversification. 3. Timing Market Entry/Exit: Strengthening correlations can confirm macroeconomic trends, helping traders align their strategies with market sentiment. 5. Practical Insights for Traders Incorporating rolling correlation analysis into trading workflows can enhance decision-making: Shorter rolling windows (e.g., daily) are suitable for short-term traders, while longer windows (e.g., monthly) cater to long-term investors. Adjust portfolio weights dynamically based on correlation trends. Hedge risks by identifying assets with diverging rolling correlations (e.g., if ZN-GC correlations weaken, consider adding other uncorrelated assets). 6. Practical Example: Applying Rolling Correlations to Trading Decisions To illustrate the real-world application of rolling correlations, let’s analyze a hypothetical scenario involving ZN (Treasuries) and GC (Gold), and 6J (Yen Futures): 1. Portfolio Diversification: A trader holding ZN notices a decline in its rolling correlation with GC, indicating that the two assets are diverging in response to unique drivers. Adding GC to the portfolio during this period enhances diversification by reducing risk concentration. 2. Risk Management: During periods of heightened geopolitical uncertainty (e.g., late 2022), rolling correlations between ZN and 6J rise sharply, indicating a shared safe-haven demand. Recognizing this, the trader reduces exposure to both assets to mitigate over-reliance on risk-off sentiment. 3. Market Entry/Exit Timing: Periods where the rolling correlation between ZN (Treasuries) and GC (Gold Futures) transitions from negative to positive signal that the two assets are potentially regaining their historical correlation after a phase of divergence. During these moments, traders can utilize a simple moving average (SMA) crossover on each asset to confirm synchronized directional movement. For instance, as shown in the main chart, the crossover highlights key points where both ZN and GC aligned directionally, allowing traders to confidently initiate positions based on this corroborative setup. This approach leverages both correlation dynamics and technical validation to align trades with prevailing market trends. These examples highlight how rolling correlations provide actionable insights that improve portfolio strategy, risk management, and trade timing. 7. Conclusion Rolling correlations offer a dynamic lens through which traders and investors can observe evolving market relationships. Unlike static correlations, rolling correlations adapt to shifting macroeconomic forces, revealing trends that might otherwise go unnoticed. By incorporating rolling correlations into their analysis, market participants can: Identify diversification opportunities and mitigate concentration risks. Detect early signs of market regime shifts. Align their portfolios with dominant trends to enhance performance. In a world of constant market changes, rolling correlations can be a powerful tool for navigating complexity and making smarter trading decisions. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
COMEX:GC1!Education
by traddictiv
High Potenzial Invest Flow/EurAfter years and month of downtrend, now the important volume comes in and also the trendline broke through with this massiv volumen. In my eyes a no brainer, now investing some money and in the next month to years in combination with the industry / german / europe crisis it´s a very good way to diversify your money. The potenzial is up to x 40 maybe a new higher high x 70, but with a easy attitude and a realistic mind first realization from x8 - x10 because the volatility of crypto assets and then buying back with cost average. gl & hf
Long
by dipl_ing
Diversify Your Crypto InvestmentsCryptocurrency markets are known for their volatility, where prices can rise and fall dramatically within a short period. To manage the risks and capitalize on potential gains, diversifying your cryptocurrency portfolio is crucial. Just as in traditional investing, spreading your investments across different crypto assets helps reduce exposure to extreme price movements in any single asset and ensures you can benefit from the growth of various sectors within the market. In this idea, we’ll explore the concept of crypto diversification, the importance of spreading risk, and a recommended percentage allocation for building a balanced portfolio across Bitcoin, Ethereum, altcoins, and meme coins. Why Crypto Diversification Matters Risk Management: Cryptocurrencies are notoriously volatile. By diversifying, you reduce the risk of one asset dramatically impacting your portfolio. If one cryptocurrency underperforms or crashes, others might perform well enough to offset potential losses. Exposure to Different Technologies: The cryptocurrency space is vast, with Bitcoin leading as a store of value, Ethereum as a smart contract platform, and altcoins offering innovations in areas like decentralized finance (DeFi), NFTs, and blockchain scalability. Diversification allows you to participate in the growth of these different technologies. Hedge Against Market Swings: Different cryptocurrencies may react to market conditions in various ways. For example, during market corrections, Bitcoin and Ethereum might drop less sharply than smaller altcoins or meme coins. A diversified portfolio allows you to hedge against such market swings. Suggested Crypto Portfolio Diversification When it comes to diversifying your crypto portfolio, a strategic approach can help you balance between established coins, emerging altcoins, and more speculative assets. Here’s an example of a diversified crypto portfolio with percentage allocations: 1. 50% Bitcoin (BTC) Bitcoin is often referred to as "digital gold" and is considered the most stable and established cryptocurrency. As the largest cryptocurrency by market capitalization, it has the least volatility compared to altcoins and meme coins. A 50% allocation to Bitcoin provides a solid foundation for your portfolio, acting as a safer hedge in the volatile world of crypto. 2. 20% Ethereum (ETH) Ethereum is the second-largest cryptocurrency and the leading platform for decentralized applications (dApps), smart contracts, and DeFi protocols. With its growing ecosystem and the shift to Ethereum 2.0 (which promises greater scalability), Ethereum offers significant growth potential while maintaining more stability than smaller altcoins. A 20% allocation in Ethereum allows you to participate in the innovation and expansion of decentralized finance and other blockchain applications. 3. 25% Altcoins: Altcoins are any cryptocurrencies other than Bitcoin, many of which offer unique technological innovations. For this part of the portfolio, you could include assets such as SOL, FET, INJ, UNI, LINK, etc. Allocating 25% of your portfolio to altcoins offers exposure to innovative technologies with potentially high returns, though they come with higher risks compared to Bitcoin or Ethereum. 4. 5% Meme Coins (DOGE, SHIB, etc.) Meme coins like Dogecoin (DOGE) or Shiba Inu (SHIB) are speculative assets that often gain value due to community support, social media hype, or celebrity endorsements. They are extremely volatile, with the potential for short-term gains but also significant risks. Keeping only 5% of your portfolio in meme coins ensures you don’t overexpose yourself to their high volatility, while still allowing you to benefit if these coins surge in value. Example of a Diversified Crypto Portfolio Allocation Let’s assume you have $10,000 to invest in cryptocurrencies. Here's how you might allocate your funds based on the diversification strategy above: $5,000 in Bitcoin (50%) $2,000 in Ethereum (20%) $2,500 in Altcoins (25%) $500 in Meme Coins (5%) This allocation offers a balanced approach, giving you exposure to the relative safety of Bitcoin and Ethereum while also allowing you to take advantage of the potential high growth from altcoins and meme coins. Why This Allocation Strategy Works - Stability with Growth Potential: With 50% allocated to Bitcoin and 20% to Ethereum, you are investing in two of the most established and widely adopted cryptocurrencies. These are often seen as the "safer" options in the crypto world, and their long-term potential is generally considered strong. - Exposure to Innovation: The 25% allocation to altcoins provides exposure to emerging sectors like DeFi, AI, and blockchain interoperability. While altcoins tend to be more volatile, they offer significant growth potential if their underlying technologies gain widespread adoption. - High-Risk, High-Reward: The 5% allocation to meme coins adds a speculative aspect to the portfolio. Meme coins have a history of spiking in value, often due to online hype. Although risky, keeping a small portion of your portfolio in these assets can offer the opportunity for outsized gains while limiting your risk. Key Tips for Managing a Diversified Crypto Portfolio - Rebalance Regularly: The crypto market is highly volatile, and the value of different assets can fluctuate dramatically. Periodically rebalance your portfolio to ensure that your allocations remain aligned with your goals. For example, if the value of your meme coins spikes, they might occupy a larger percentage of your portfolio than desired. Rebalancing ensures that you take profits and stick to your original diversification strategy. - Do Your Own Research (DYOR): While diversification helps mitigate risk, it's essential to research the coins you're investing in. Don’t blindly invest in an asset just because it’s trending. Understand the project, its use case, the team behind it, and its long-term potential. - Avoid Over-Diversification: While diversification is important, spreading your investments too thin can dilute your returns. Focus on quality projects rather than trying to invest in every available cryptocurrency. - Have a Long-Term Mindset: The crypto market can be volatile in the short term, but having a long-term mindset is critical for success. Don’t panic during market dips—if you have a well-diversified portfolio, you’re better positioned to ride out the volatility and potentially benefit from long-term growth. Diversifying your cryptocurrency portfolio is a smart strategy for managing risk and taking advantage of the crypto market's various opportunities. A balanced allocation—such as 50% Bitcoin, 20% Ethereum, 25% altcoins, and 5% meme coins—helps you mitigate the risks of volatility while allowing you to participate in the growth of different sectors.
CRYPTOCAP:TOTALEducation
by HexaTrades
From Tokyo with Love: Key Opportunities with Japan's Top Index1. Introduction The Nikkei 225 is Japan's premier stock market index and one of the most widely followed indexes in the world. As the representative of Japan's economy, the Nikkei 225 includes many of the country’s most influential companies across various industries, such as Toyota, Sony, and SoftBank. With Japan being the third-largest economy globally, traders who seek exposure to the Asian market find the Nikkei 225 to be a crucial addition to their portfolios. Now is an opportune time to study and potentially add the Nikkei 225 to your watchlist, as Micro contracts are set to launch later this year, offering greater accessibility to both institutional and retail traders. These micro contracts will allow traders to manage their positions with more precision, capital efficiency, and reduced exposure. With the futures contracts denominated in both US Dollars and Japanese Yen, traders can select their currency exposure based on market preferences. Contract Specifications: # Nikkei/USD Futures: Contract size: $5 USD per index point Tick size: 5 points = $25 USD per contract Margin: USD $12,000 per contract at the time of producing this article Trading hours: Almost 24-hour trading, covering Asian, European, and US sessions # Nikkei/YEN Futures: Contract size: ¥500 per index point Tick size: 5 points = ¥2,500 per contract Margin: JPY ¥1,200,000 per contract at the time of producing this article Trading hours: Mirrors the USD futures trading hours for global reach For traders looking for exposure to Japan’s economy, these contracts offer versatile trading opportunities with sufficient liquidity, price movement, and round-the-clock accessibility. You can access real-time data on these contracts through TradingView - view the data package at www.tradingview.com 2. Global Market Diversification The Nikkei 225 Index offers more than just exposure to the Japanese market; it’s a portal into Asia’s largest and most developed economy. With Japan being an export-driven economy, exposure to the Nikkei 225 allows traders to capitalize on trends in global manufacturing, technology, and industrials. Additionally, during periods of macroeconomic divergence—where the economic performance of regions like the US and Asia deviate—the Nikkei 225 can provide a non-correlated trading opportunity. 3. Correlation and Hedge Against US Equities While Japan is a developed economy like the United States, its market dynamics differ substantially. The Nikkei 225 often shows a lower correlation with US equity markets, meaning that the index tends to react differently to global and local economic events compared to indices like the S&P 500. This graph illustrates the rolling 30-day correlation between the Nikkei 225 and the S&P 500, highlighting the fluctuating relationship between the two indices and how they decouple at times, especially during periods of heightened market volatility. 4. Japanese Yen and US Dollar Denominated Contracts One of the unique aspects of the Nikkei futures is the ability to trade the index in either US Dollars or Japanese Yen. This flexibility allows traders to choose the contract that best suits their currency exposure preferences, providing a powerful tool for those who also wish to hedge or capitalize on currency movements. Nikkei/USD Futures: These contracts are settled in US dollars. Nikkei/YEN Futures: Conversely, for traders who want to factor in currency risk, the Yen-denominated futures offer exposure not just to the Nikkei 225’s price movements but also to the Yen's fluctuations against the US dollar or other currencies. As the introduction of Micro contracts approaches, this will add even more flexibility for traders, particularly retail traders who prefer smaller contract sizes and more precise risk management. These contracts will enable traders to adjust their positions with greater capital efficiency, allowing for a wider range of strategies—from short-term speculative trades to long-term hedging positions. 5. Monetary Policy Divergence Japan's monetary policy, led by the Bank of Japan (BoJ), has been historically distinct from the policies of the US Federal Reserve and European Central Bank (ECB). Understanding Japan's monetary policy divergence allows traders to better time their entry and exit points in the Nikkei 225, especially as the Bank of Japan navigates its unique approach to economic stimulus and potential shifts in strategy. 6. Sector Opportunities The Nikkei 225 is heavily weighted towards key sectors that represent the backbone of Japan’s economy, offering traders exposure to industries that may be underrepresented in other global indices. Some of the most prominent sectors within the Nikkei 225 include: Technology: Japan is a leader in technology and innovation, with major companies such as SoftBank and Sony leading the charge. Automotive: Japan’s automotive sector is world-renowned, with giants like Toyota, Honda and Nissan among the top constituents of the index. As global trends shift toward electric vehicles and sustainable manufacturing, Japan’s automotive industry stands to benefit. Manufacturing: As a global manufacturing powerhouse, Japan's output is closely tied to global demand. The Nikkei futures provide traders with a way to express their views on these industries, capitalizing on global demand trends in high-tech products, automobiles, and industrial manufacturing. 7. Volatility Trading One of the key attractions of the Nikkei 225 futures is the index's volatility, which is often higher than that of its Western counterparts, such as the S&P 500. Traders who thrive in volatile environments will find the Nikkei 225 particularly appealing, as it presents more frequent and larger price swings. This heightened volatility is especially noticeable during global economic shocks or shifts in local economic policy. Additionally, since Japan's market opens several hours before European and US markets, traders can use the Nikkei 225 to capture early momentum shifts that may influence sentiment in Western markets as they open. This graph highlights the elevated volatility of the Nikkei 225 compared to the S&P 500. 8. Japan’s Political and Economic Landscape Japan has been taking proactive steps toward economic reform in recent years. With initiatives aimed at corporate governance improvements, stimulus packages, and structural reforms. Several factors make Japan's political and economic landscape appealing for traders: Corporate governance reforms: Japan has been improving its corporate governance structure, making its market more attractive to both domestic and foreign investors. Economic stimulus packages: These government-led initiatives have provided a tailwind for many sectors within the Nikkei 225. Weakening Yen: Japan’s export-driven economy has benefited from a weaker Yen, which boosts the competitiveness of Japanese goods on the global stage. The potential for long-term growth makes the Nikkei 225 an appealing market for those who follow macro-driven opportunities. 9. Geopolitical Events and Trade Dynamics Japan remains one of the world’s largest exporters, and as such, the Nikkei 225 is heavily influenced by global trade relations, particularly with the US and China. Traders can use the Nikkei 225 to take positions based on their views of the global geopolitical landscape. For example: US-China trade tensions: Japan, being a major exporter to both countries, finds itself deeply connected to global trade trends. Global demand for Japanese exports: Changes in global trade agreements or tariff structures could either boost or harm the performance of these industries. 10. Liquidity Liquidity remains an important consideration, as the S&P 500 contracts offer greater liquidity, but the growing interest in the Nikkei 225 has resulted in increased volumes in recent months. As Micro contracts are introduced, the liquidity of the Nikkei 225 is likely to improve, making it an even more attractive trading instrument for all types of traders. This graph highlights the trading volumes for both Nikkei 225 and S&P 500 futures. 11. Cumulative Returns Comparison When comparing cumulative returns over time, the Nikkei 225 has demonstrated significant growth. However, this growth has come with a higher level of volatility than the S&P 500. The Nikkei 225's higher risk-reward profile makes it an attractive option for traders looking to capture short- to medium-term gains during periods of economic growth or policy shifts in Japan. This graph shows the cumulative returns of the Nikkei 225 versus the S&P 500. 12. Price Range Opportunities The average daily price range of the Nikkei 225 is another compelling factor for active traders. The Nikkei 225 frequently exhibits larger daily price movements than the S&P 500, especially during periods of high volatility. This makes it an ideal market for short-term traders looking to capitalize on intraday price swings. The graph, where daily price ranges have been multiplied by their corresponding point values, demonstrates how the Nikkei 225 has exhibited wider price ranges. 13. Conclusion The Nikkei futures offer a unique set of opportunities for traders looking to diversify their portfolios, capitalize on volatility, and gain exposure to Japan’s leading industries. It is a powerful tool for both short-term traders and those with longer-term macro views. In addition, the forthcoming Micro contracts will make the Nikkei 225 accessible to a wider range of traders, allowing for more precise risk management and exposure adjustments. Key takeaways for traders considering the Nikkei futures include: Global diversification beyond US and European markets. The ability to hedge against US equity volatility. Opportunities in high-growth sectors such as technology and automotive. The potential for higher volatility, offering both risk and reward. Flexible contract options in both USD and Yen, allowing for currency risk management. For traders looking to add a new dynamic instrument to their watchlist, the Nikkei/USD and the Nikkei/YEN futures are a potentially ideal candidate, combining diversification, volatility, and sectoral exposure into a powerful trading product. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CME:NIY1!
by traddictiv
2
Be greedy when others are fearful - © Warren BuffettAs the cryptocurrency market gears up for a potential alt season, savvy investors are positioning themselves to capitalize on the gains of altcoins. This article will explore six promising altcoins and the significance of sector diversification in maximizing returns. Be Greedy When Others Are Fearful, Fearful When Others Are Greedy: This timeless adage by Warren Buffett highlights the importance of contrarian investing. During alt seasons, when the market is euphoric and prices are rising, it's crucial to maintain a level head and avoid overextending. Conversely, when the market is in a downtrend and fear is prevalent, it's an opportunity to accumulate undervalued assets. Top 6 Altcoins for Alt Season: Dogecoin (DOGE): Forming a bullish ascending triangle pattern, DOGE is poised for a breakout. The triangle's squeeze indicates a potential surge in price. Respecting the ascending trend and avoiding new lows suggests an upward breakout. Sector: Meme Coin Chainlink (LINK): With an accumulation period spanning 518 days, LINK is primed for a significant pump. The longer the consolidation, the stronger the potential breakout, adhering to the golden rule of accumulation. The ideal shakeout beneath the accumulation range followed by price appreciation reinforces the bullish outlook. Sector: Oracle Optimism (OP): Trading within an ascending channel and consistently respecting the lows, OP exhibits strong bullish momentum. The pattern and price action suggest a continuation of the uptrend. Sector: Layer 2 Scaling Solution Immutable X (IMX): Breaking above local highs and retesting the upper resistance trendline, IMX confirms a trend reversal to the bullish side. This price action signifies a shift in market sentiment. Sector: NFT Marketplace Avalanche (AVAX): Coiling within a descending wedge (bullish pattern), AVAX experienced a shakeout below a crucial support level ($9) before resuming its upward trajectory. Respecting old support levels is essential. Sector: Layer 1 Blockchain VeChain (VET): Epitomizing a textbook bullish run, VET adheres strictly to the ascending trend. Each cycle consists of price appreciation, accumulation, and further growth. Sector: Supply Chain Management Sector Diversification: Diversifying across sectors is crucial, as different sectors tend to perform differently based on market trends and events. For instance, during periods of DeFi dominance, DeFi-focused altcoins may outperform. Conversely, when NFT mania takes hold, NFT marketplace tokens could surge.
Education
by Yaroslav_Krasko
2
Diversification: What It Is, Why It Matters & How to Do ItDiversification is a market strategy that enables you to spread your money across a variety of assets and investments in pursuit of uncorrelated returns, hedging, and risk control. Table of Contents What is portfolio diversification? Brief history of the modern portfolio theory Why is diversification important? An example of diversification at work How to diversify your portfolio Components of a diversified portfolio Build wealth through diversification Diversification vs concentration Summary 📍 What is portfolio diversification? Portfolio diversification is the strategy of spreading your money across diverse investments in order to mitigate risk, hedge and balance your exposure in pursuit of uncorrelated returns. While it may sound complex at first, portfolio diversification could be your greatest strength when you set out to trade and invest in the financial markets. As a matter of fact, once you immerse yourself into the markets, you will be overwhelmed by the wide horizons waiting for you. That’s when you’ll need to know about diversification. There are thousands of stocks available for trading, dozens of indices, and a sea of cryptocurrencies. Choosing your investments will invariably lead to relying on diversification in order to protect and grow your money. Diversifying well will enable you to go into different sectors, markets and asset classes. Together, all of these will build up your diversified portfolio. 📍 Brief history of the modern portfolio theory “ Diversification is both observed and sensible; a rule of behavior which does not imply the superiority of diversification must be rejected both as a hypothesis and as a maxim. ” These are the words of the father of the modern portfolio theory, Harry Markowitz. His paper on diversification called “Portfolio Selection” was published in The Journal of Finance in 1952. The theory, which helped Mr. Markowitz win a Nobel prize in 1990, posits that a rational investor should aim to maximize their returns relative to risk. The most significant feature from the modern portfolio theory was the discovery that you can reduce volatility without sacrificing returns. In other words, Mr. Markowitz argued that a well-diverse portfolio would still hold volatile assets. But relative to each other, their volatility would balance out because they all comprise one portfolio. Therefore, the volatility of a single asset, Mr. Markowitz discovered, is not as significant as the contribution it makes to the volatility of the entire portfolio. Let’s dive in and see how this works. 📍 Why is diversification important? Diversification is important for any trader and investor because it builds out a mix of assets working together to yield returns. In practice, all assets contained in your portfolio will play a role in shaping the total performance of your portfolio. However, these same assets out there in the market may or may not be correlated. The interrelationship of those assets within your portfolio is what will allow you to reduce your overall risk profile. With this in mind, the total return of your investments will depend on the performance of all assets in your portfolio. Let’s give an example. 📍 An example of diversification at work Say you want to own two different stocks, Apple (ticker: AAPL ) and Coca-Cola (ticker: KO ). In order to easily track your performance, you invest an equal amount of funds into each one—$500. While you expect to reap handsome profits from both investments, Coca-Cola happens to deliver a disappointing earnings report and shares go down 5%. Your investment is now worth $475, provided no leverage is used. Apple, on the other hand, posts a blowout report for the last quarter and its stock soars 10%. This move would propel your investment to a valuation of $550 thanks to $50 added as profits. So, how does your portfolio look now? In total, your investment of $1000 is now $1,025, or a gain of 2.5% to your capital. You have taken a loss in Coca-Cola but your profit in Apple has compensated for it. The more assets you add to your portfolio, the more complex the correlation would be between them. In practice, you could be diversifying to infinity. But beyond a certain point, diversification would be more likely to water down your portfolio instead of helping you get more returns. 📍 How to diversify your portfolio The way to diversify your portfolio is to add a variety of different assets from different markets and see how they perform relative to one another. A single asset in your portfolio would mean that you rely on it entirely and how it performs will define your total investment result. If you diversify, however, you will have a broader exposure to financial markets and ultimately enjoy more probabilities for winning trades, increased returns and decreased overall risks. You can optimize your asset choices by going into different asset classes. Let’s check some of the most popular ones. 📍 Components of a diversified portfolio Stocks A great way to add diversification to your portfolio is to include world stocks , also called equities. You can look virtually anywhere—US stocks such as technology giants , the world’s biggest car manufacturers , and even Reddit’s favorite meme darlings . Stock selection is among the most difficult and demanding tasks in trading and investing. But if you do it well, you will reap hefty profits. Every stock sector is fashionable in different times. Your job as an investor (or day trader) is to analyze market sentiment and increase your probabilities of being in the right stock at the right time. Currencies The forex market , short for foreign exchange, is the market for currency pairs floating against each other. Trading currencies and having them sit in your portfolio is another way to add diversification to your market exposure. Forex is the world’s biggest marketplace with more than $7.5 trillion in daily volume traded between participants. Unlike stock markets that have specific trading hours, the forex market operates 24 hours a day, five days a week. Continuous trading allows for more opportunities for price fluctuations as events occurring in different time zones can impact currency values at any given moment. Cryptocurrencies A relatively new (but booming) market, the cryptocurrency space is quickly gaining traction. As digital assets become increasingly more mainstream, newcomers enter the space and the Big Dogs on Wall Street join too , improving the odds of growth and adoption. Adding crypto assets to your portfolio is a great way to diversify and shoot for long-term returns. There’s incentive in there for day traders as well. Crypto coins are notorious for their aggressive swings even on a daily basis. It’s not unusual for a crypto asset to skyrocket 20% or even double in size in a matter of hours. But that inherent volatility holds sharpened risks, so make sure to always do your research before you decide to YOLO in any particular token. Commodities Commodities, the likes of gold ( XAU/USD ) and silver ( XAG/USD ) bring technicolor to any portfolio in need of diversification. Unlike traditional stocks, commodities provide a hedge against inflation as their values tend to rise with increasing prices. Commodities exhibit low correlation with other asset classes, too, thereby enhancing portfolio diversification and reducing overall risk. Incorporating commodities into a diversified portfolio can help mitigate risk, enhance returns, and preserve purchasing power in the face of inflationary pressures, geopolitical uncertainty and other macroeconomic risks. ETFs ETFs , short for exchange-traded funds, are investment vehicles which offer a convenient and cost-effective way to gain exposure to a number of assets all packaged in the same instrument. These funds pull a bunch of similar stocks, commodities and—more recently— crypto assets , into the same bundle and launch it out there in the public markets. Owning an ETF means owning everything inside it, or whatever it’s made of. ETFs typically have lower expense ratios compared to mutual funds, making them affordable investment options. Whether you seek broad market exposure, niche sectors, or thematic investing opportunities, ETFs are a convenient way to build a diversified portfolio tailored to your investment objectives and risk preferences. Bonds Bonds are fixed-income investments available through various issuers with the most common one being the US government. Bonds are a fairly complex financial product but at the same time are considered a no-brainer for investors pursuing the path of least risk. Bonds have different rates of creditworthiness and maturity terms, allowing investors to pick what fits their style best. Bonds with longer maturity—10 to 30 years—generally offer a better yield than short-term bonds. Government bonds offer stability and low risk because they’re backed by the government and the risk of bankruptcy is low. Cash Cash may seem like a strange allocation asset but it’s actually a relatively safe bet when it comes to managing your own money. Sitting in cash is among the best things you can do when stocks are falling and valuations are coming down to earth. And vice versa—when you have cash on-hand, you can be ready to scoop up attractive shares when they’ve bottomed out and are ready to fire up again (if only it was that easy, right?). Finally, cash on its own is a risk-free investment in a high interest-rate environment. If you shove it into a high-yield savings account, you can easily generate passive income (yield) and withdraw if you need cash quickly. 📍 Build wealth through diversification In the current context of market events, elevated interest rates and looming uncertainty, you need to be careful in your market approach. To this end, many experts advise that the best strategy you could go with in order to build wealth is to have a well-diversified portfolio. “ Diversifying well is the most important thing you need to do in order to invest well ,” says Ray Dalio , founder of the world’s biggest hedge fund Bridgewater Associates. “ This is true because 1) in the markets, that which is unknown is much greater than that which can be known (relative to what is already discounted in the markets), and 2) diversification can improve your expected return-to-risk ratio by more than anything else you can do. ” 📍 Diversification vs concentration The opposite of portfolio diversification is portfolio concentration. Think about diversification as “ don’t put your eggs in one basket. ” Concentration, on the flip side, is “ put all your eggs in one basket, and watch it carefully. ” In practice, concentration is focusing your investment into a single financial asset. Or having a few large bets that would assume higher risk but higher, or quicker, return. While diversification is a recommended investment strategy for all seasons, concentration comes with bigger risks and is not always the right approach. Still, at times when you have a high conviction on a trade and have thoroughly analyzed the market, you may decide to bet heavily, thus concentrating your investment. However, you need to be careful with concentrated bets as they can turn against your portfolio and wreck it if you’re overexposed and underprepared. Diversification, however, promises to cushion your overall risk by a carefully balanced approach to various financial assets. 📍 Summary A diversified portfolio is essentially your best bet for coordinated and sustainable returns over the long term. Choosing a mix of various types of investments, such as stocks, ETFs, currencies, and crypto assets, would spread your exposure and provide different avenues for growth potential. Not only that, but it would also protect you from outsized risks, sudden economic shocks, or unforeseen events. While you decrease your risk tolerance, you raise your probability of having winning positions. Regardless of your style and approach to markets, diversifying well will increase your chances of being right. You can be a trader and bet on currencies and gold for the short term. Or you can be an investor and allocate funds to stocks and crypto assets for years ahead. Potential sources of diversification are everywhere in the financial markets. Ultimately, diversifying gives you thousands of opportunities to balance your portfolio and position yourself for risk-adjusted returns. 🙋🏾‍♂️ FAQ ❔ What is portfolio diversification? ► Portfolio diversification is the strategy of spreading your money across diverse investments in order to mitigate risk, hedge and balance your exposure in pursuit of uncorrelated returns. ❔ Why is diversification important? ► Diversification is important for any trader and investor because it creates a mix of assets working together to yield high, uncorrelated returns. ❔ How to diversify your portfolio? ► The way to diversify your portfolio is to add a variety of different assets and see how they perform relative to one another. If you diversify, you will have a broader exposure to financial markets and ultimately enjoy more probabilities for winning trades, increased returns, and decreased overall risks. Do you diversify? What is your strategy? Do you rebalance? Let us know in the comments. 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SP:SPXEducation
by TradingView
4
SPX 🗝Diversify YOUR Portfolio: EVERYONE Needs to Know❕📉Hi Traders, Investors and Speculators of Charts📈 HAVE YOU EVER CONSIDERED DIVERSIFYING YOUR PORTFOLIO? Given the high risk nature of trading, having a finger in every pie is a good idea. Stocks generally are less volatile than crypto, and index funds are a great way to gain exposure to a variety of top notch stocks. If you have ever wondered about trading stonks, today's update is for YOU. Cryptocurrencies are the largest part of our focus, but that doesn't mean we don't consider other markets such as forex, commodities and stocks. So today, let's take a look at the SPX / S&P 500. Index investing, especially in the S&P 500, streamlines stock market engagement. Investing here means tapping into America's corporate giants, offering long-term returns and simplicity, often outperforming active stock picking. Since 1957, the S&P 500 has offered a global economic snapshot, including key international corporations. Its careful selection process reflects market trends, focusing on criteria like market cap and liquidity. The top 4 stocks in the SPX by weight are : 1) Microsoft Corporation / NASDAQ:MSFT 2) Apple Inc. / $AAPLE 3) Nvidia Corp / NASDAQ:NVDA 4) Amazon.com Inc. / NASDAQ:AMZN # Company Portfolio% 1 Microsoft Corp 7.14% 2 Apple Inc. 6.36% 3 Nvidia Corp 4.24% 4 Amazon.com Inc 3.65% To put it into perspective, the last 4 stocks are: 500) NASDAQ:NWL / Newell Brands Inc. Producer Manufacturing 501) NYSE:DXC / DXC Technology Company Technology Services 502) NYSE:AAP / Advance Auto Parts Inc. Retail Trade 503) NYSE:TPR / Tapestry, Inc. Retail Trade / with a market cap of 4,017,225,400 (There are actually 503 stocks in the S&P500). From the above, we can clearly conclude that what happens in those top 4 markets, holds quite a lot more weight than the rest. This should give you a clue which ones to look at if you want to invest in additional stocks and not necessarily a fund. To correctly identify the macro phase is to have power - this will eliminate fear and greed, and cancel out the noise you hear from news and "influencers". Looking at SPX from a monthly perspective, we can clearly identify a strong bullish trend as the market loses makes what seems to be UP ONLY and keeps on making higher highs. By using the S&P 500 or the AMEX:VTI , you can more easily spot the macro trend of the stock market, and which way MOST of the stocks will go, especially the top few. If you found this content helpful, please remember to hit like and subscribe and never miss a moment in the markets. _______________________ 📢Follow us here on TradingView for daily updates📢 👍Hit like & Follow 👍 CryptoCheck SP:SPX NASDAQ:MSFT NASDAQ:AAPL NASDAQ:NVDA NASDAQ:AMZN
SP:SPXLong
by CryptoCheck-
CAKE Basic trend. Working with reversal zones. Money management.Logarithm. Time frame 1 week. Major trend. Combined education and potential trade in ideas. Pivot zones from key liquidity zones. The main idea and meaning of this idea is to show the logic of working with reversal zones from key resistance support levels, which will determine the further development of the trend. I have shown all possible scenarios of secondary trend development from more probable and logical to less probable, but which have the right to be realized. You should always keep even unlikely scenarios in your mind, even if you do not believe in them. Few people calculate different variants of trend development ahead of time. In most, as a rule, there is one scenario of price movement, but it is built in most cases on the desire that it was exactly as profitable. This is how this trend looks like on a line chart. Exchanges and surprises. Money management. CAKE (PancakeSwap) is a decentralized exchange (DEX) token on the Binance Smart Chain, launched by anonymous developers The coin as an example of similar crypto of the third liquidity group, which lose capitalization, that is, people's faith in the project itself - "the faith of the community is killed". It is quite possible that at one moment the faith in anonymous developers will be "killed" and they will use the existing liquidity for the last time. I emphasize what blockchain the token is made on and how many bad triggers (FUD and not only) in the info space, not only with the designation “4”. The idea (long-term trend) is more educational than trading because of the degree of risk (liquidity, “ugly chart” for the future, large depreciation, breaking a long horizontal channel at a very large %). My desire is to trace on a live chart how the fate of two exchanges will be reflected on the price of this token in the future. Liquid, popular, reliable and conditionally decentralized with “anonymous developers”. Local trend. Work in it (only in it and nothing else). Risk Management. But, in the local trend at the moment, this coin is interesting to work, especially since the triangle is almost formed and soon the dénouement. Stops will be quite short in the direction of the breakout, that is work. I will post an idea for local-medium term work below. Take a local profit (maybe substantial) and forget once and for all about crypto fantasies and what will happen to the price next. No regrets if you took a relatively small profit and further development of the trend showed an order of magnitude more. In the end, it may be the other way around, you will be the lucky one who “made it” before the “sunset”. Learn to take profit from the market, it is better to take a little bit at a time, limiting risks, than to take a potentially large profit (which is what most “sectarians” are waiting for). In the long run, I highly recommend not getting involved with this or other similar cryptocurrencies. You will be playing casino, and not so much with risk management (risk/profit ratio in trading) but with money management (money management in general, places to store and trade). So stops can be useless in some not quite trading situations. Note how I've written a lot of information that doesn't really apply to this cryptocurrency directly, but only indirectly, as a potential consequence of more global yet equally potential events . Observe money management and risk management in trading, diversify where you trade and store crypto assets, this will guarantee a sound sleep in the future. . Secondary trend + local work. Time frame 3 days. 08 2023
by SpartaBTC
12
Reduce risk in portfolios without hampering returns Asset allocation is ultimately about balancing returns with risks. While it is relatively easy to reduce risk in a portfolio, it is harder to do so without diminishing its return potential. Diversification, that is, adding uncorrelated assets to the portfolio, is one of the main tools available to investors to lower such risk, but it often comes at the cost of returns. The 60/40 portfolio, a mix between 60% equities and 40% fixed income, is the bedrock of asset allocation for many investors. Adding fixed income to equities does lower volatility and improve the Sharpe ratio, in line with Markowitz’s findings in this Nobel Prize-winning work and due to the historically negative correlation between equities and investment-grade fixed income. However, it is also true that a 60/40 portfolio has tended to deliver lower returns than a 100% equity portfolio. Does it mean that investors have to choose between higher returns with increased volatility or lower returns with decreased volatility? Cliff Asness’ thought experiment: the levered 60/40 As with any problem, the solutions usually require out-of-the-box thinking. In our case, it requires to start thinking about leverage. Cliff Asness, co-founder of AQR Capital, provided such a solution in December 1996 when serving as Goldman Sachs Asset Management’s director of quantitative research with his paper ‘Why Not 100% Equities: A Diversified Portfolio Provides More Expected Return per Unit of Risk’. In his paper, Asness argues that investors can achieve competitive returns while managing risk more effectively by diversifying their portfolios with a combination of equities and bonds and using leverage. Asness designs the ‘Levered 60/40’ portfolio which leverages a 60/40 portfolio so that the volatility of the leveraged portfolio is equal to those of equities. The applied leverage is, therefore 155%. The borrowing rate used for leveraging his 60/40 portfolio is proxied by the one-month t-bill rate. In his original paper, Asness finds that, over the period 1926 to 1993, the Levered 60/40 portfolio returns 11.1% on average per year with 20% volatility. Equities, in contrast, return only 10.3% with the same volatility. For reference, the 60/40 portfolio (unleveraged) returns 8.9% with 12.9% volatility. We extended the Asness analysis to the most recent period. We observe that over this longer period, the results still hold true. The Levered 60/40 delivers higher returns than equities with similar volatility. The Sharpe ratio of the Levered 60/40 benefits from the diversification and is improved, compared to equities, with no cost to returns themselves. Leveraging the 60/40 around the world, a successful extension In Figure 2, we extend the analyses to other regions to test the robustness of such results. While the history is not as deep, Figure 2 shows similar results. Across all the tested regions, the returns and Sharpe ratio of the Levered 60/40 portfolio exceeds those of the equities alone. At the same time, the volatility is identical, and the max drawdown is reduced. Note that we do not use a 155% leverage in all those analyses; we use the relevant leverage to match the volatility of the equities in the region. Having said that, the leverage remains very similar across regions as it oscillates between 160% for global equities and 170% for Japanese equities. The theory behind the Levered 60/40 From a theoretical point of view, the idea of focusing on the most efficient portfolio possible and leveraging it to create the most suited investment for a given investor is well anchored in financial theory. When he introduced the Modern Portfolio Theory (MPT) in 1952, Harry Markowitz had already outlined the concept through the Capital Allocation Line (Markowitz, March 1952). The efficient frontier for a mix of 2 assets: US equities and US high investment-grade bonds. Note that each portfolio on the efficient frontier is the most efficient for a given level of volatility, assuming no leverage. All portfolios on the efficient frontier are not equal and have, in fact, different Sharpe ratios. Along this efficient frontier, there is a portfolio with the highest Sharpe ratio of all, called the ‘Tangential Portfolio’. This most efficient of all the efficient portfolios happens to be found where the Capital Allocation Line touches the efficient frontier. The Capital Allocation Line is the line that is tangential to the efficient frontier and crosses the Y axis (the 0% volatility axis) at a return level equal to the risk-free rate. When it comes to building the most efficient portfolio for a given level of volatility, investors have two choices. Without leverage, they can pick the portfolio with the highest return for that volatility level on the efficient frontier. If investors look for strategies with a volatility level equal to equities, equities are the most efficient portfolio. Considering potential leverage, the answer is quite different. With leverage, an investor can pick the portfolio with the relevant volatility level (in this case, the equity volatility) on the Capital Allocation Line. Portfolios on this line happen to have a Sharpe ratio equal to the Sharpe ratio of the Tangential portfolio (that is, the best Sharpe ratio of all the portfolio combinations without leverage) but with any level of volatility that may be required. We called the Leveraged Tangency Portfolio the portfolio on the Capital Allocation Line with the same volatility as the equity portfolio. This portfolio is a ‘more efficient portfolio’. The return is improved by almost 2% for the same volatility, leading the Sharpe ratio to jump from 0.27 to 0.45. Key Takeaways “Diversification is the only free lunch in Finance”, whether a real or fake H. Markowitz’s quote, epitomises the philosophy that underpins the 60/40 portfolio. It is also one of the main lessons from Markowitz's Nobel prize-winning work. Having said that, the second lesson has not been heeded as well: leveraging a good portfolio can make an even better portfolio. Overall, by leveraging a traditional 60/40 portfolio, an idea that, at WisdomTree, we call ‘Efficient Core’, investors could potentially receive a similar level of volatility present in a portfolio 100% allocated to equities but with the better Sharpe ratio of a 60/40 portfolio. Possible examples of where such Efficient Core portfolios may be used widely in multi-asset portfolios include: An equity replacement A core equity solution designed to replace existing core equity exposures. By offering return enhancement, improved risk management and diversification potential compared to a 100% equity portfolio, Efficient Core can also be used to complement existing equity exposures. A capital efficiency tool By delivering equity and bond exposure in a capital-efficient manner, Efficient Core can help free up space in the portfolio for alternatives and diversifiers. In line with the illustrations above, allocating 10% of a portfolio to this idea, investors would aim to get 9% exposure to US equities and 6% exposure to US Treasuries. This could allow investors to divest 6% from existing fixed income exposures and consider alternative assets (such as broad commodities, gold, carbon or other assets). In this scenario it could potentially be achieved without losing the diversifying benefits of their fixed income exposure. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
FRED:GDPC1
by aneekaguptaWTE
Educational : Diversification, systematic vs unsystematic riskWhen it comes to investing and trading, risk is a constant factor that requires careful consideration. Let's explore the concepts of systematic and non-systematic risk: Deeper Dive Market risk and non-diversifiable risk are other names for systematic risk. It is the kind of risk that is intrinsic to the entire market or a particular area within it and cannot be completely avoided by diversification. This means that you cannot totally protect yourself from systematic risk, regardless of how diversified your investment portfolio is. There are many ways of mitigating risk in the market but due to the nature of the market there is no way to completely eliminate this risk element. There will also be a certain level of risk that you need to account for. Unpredictability: The unpredictability of systemic risk is one of its difficult elements. These risk factors frequently come as a surprise and can appear quickly, making it challenging to plan for their effects. Even seasoned investors can be caught off guard by events like global economic crises or political turmoil because of the intricate network of interconnected factors that affect financial markets. There is also the fact that markets are inherently fractal. You can read more about this in my publication on how the market is fractal. (Will be in related ideas) Unsystematic Risk on the other hand refers to the risk that is specific to a particular company, industry, or asset and can be mitigated through diversification. Unlike systematic risk, which affects the entire market, unsystematic risk is unique to individual entities and can be reduced or eliminated by spreading investments across different assets. Some of these risk might be in individual companies or assets but do not have a widespread impact on the entire market. Examples include management changes, product recalls, lawsuits, technological innovations, and changes in consumer preferences. These factors can significantly influence the performance of a single company's stock or asset. There is also sector or industry specific risk. If you work for a company that produces technical indicators, changes in regulations affecting the financial industry or a downturn in the technology sector could impact the company's performance. Investing solely in one sector exposes your portfolio to a higher degree of unsystematic risk. Unsystematic risk can be mitigated using many strategies. Two popular methods listed below. Asset Allocation or portfolio diversification: Allocating your investments across different asset classes (stocks, bonds, real estate, etc.) can help mitigate the impact of unsystematic risk. Different asset classes may respond differently to market events. Where one asset starts to go down another might start to go up and the fall and rise of these assets might be at different severity allowing you the flexibility to deploy risk management strategies to maximise on the rising asset Hedging: Using financial derivatives like options and futures contracts can provide a way to hedge against specific systematic risks, such as currency fluctuations or interest rate changes. Diversification in one of the big factors in reducing your risk. As the diagram shows the more diversify the portfolio becomes the less subject it is to unsystematic risk but you will eventually get to a equalising point where you still have to account for systematic risk. It is important to note that diversifying your portfolio is not just simply investing in as many assets or industries as possible. This process needs to be a calculated application. If not, what can happen is that you fill your porfolio with random assets and stocks that end up having bad correlation between each other causing you to lose. When you buy on one asset you will lose on another constantly making it hard for you to find and edge/alpha
COINBASE:ETHUSDEducation
by ChristopherDownie
2
👊Diversification: A Key to Managing Risk and Enhancing Returns.Diversification: A Key to Managing Risk and Enhancing Returns in Your Investment Strategy Diversification is a fundamental principle in investment strategy that seeks to manage risk and potentially improve returns by owning a range of assets. While many associate diversification with stocks and bonds, its scope extends to various asset classes, including funds, real estate, and cash. By spreading investments across assets that behave differently in varying economic conditions, investors aim to minimize the impact of any single investment and achieve a well-balanced portfolio. In this article, we explore the concept of diversification, its benefits for investors, and provide six strategies to effectively diversify your investment portfolio. What Does Diversification Mean? At its core, diversification involves owning a variety of assets that exhibit different performance characteristics over time, while avoiding excessive exposure to any single investment or asset type. In the realm of stock investing, a diversified portfolio typically comprises 20-30 or more different stocks across diverse industries. However, diversification can extend to other assets such as bonds, funds, real estate, CFDs, and savings accounts. Each asset class behaves differently as the economy goes through expansion and contraction, offering varying potential for gains and losses: Stocks: Stocks have the potential for high returns over the long term, but their prices can experience significant fluctuations over shorter periods. Bonds: Bonds provide more stable returns with fixed payouts, but their value can still fluctuate as interest rates rise and fall. Funds: Funds are often diversified as they hold multiple investments. However, the level of diversification within a specific fund can vary depending on its management. Some funds may focus on a single industry, while others may adopt a broader diversification strategy. CFDs: This financial instrument is an excellent decision for diversification, as it offers exposure to a wide range of assets without owning them directly. CFDs allow investors to benefit from price movements in various markets, including stocks, commodities, and currencies. Real Estate: Real estate has the potential for slow appreciation over time and can also generate rental income. However, it requires significant maintenance costs and involves high commissions when buying or selling physical properties. By combining assets with different growth patterns, some assets may experience rapid growth while others remain steady or decline. Over time, the leading performers may become underperformers, and vice versa. The key appeal of diversification lies in the low correlation between these assets, meaning their performance is not highly synchronized. By diversifying one's portfolio, investors aim to reduce risk and potentially enhance long-term returns by spreading their investments across various asset classes. This approach helps create a more resilient portfolio that can weather market fluctuations and uncertainties. The strategies we discuss next will provide practical guidance on how to implement effective diversification in your investment journey, ensuring you can confidently navigate the dynamic landscape of financial markets. The Benefits of Diversification for Investors: Reducing Risk and Enhancing Returns Diversification is a cornerstone of smart investing, offering numerous advantages for investors seeking to manage risk and achieve more stable returns. By owning a mix of assets that perform differently over time, diversification helps to spread risk across a portfolio, preventing any single investment from having an outsized impact. This risk reduction "free lunch" makes diversification an appealing option for investors. Different assets behave in varying ways during economic conditions, and diversification helps smooth out investment returns. While stocks may experience volatility, bonds might move in a different direction, and other assets like CDs could provide consistent growth. By owning different proportions of each asset, investors achieve a weighted average of returns, shielding the portfolio from dramatic swings experienced by individual assets. Although exceptional returns from a single high-flying stock may not be realized, diversification offers a more balanced approach that can withstand market fluctuations. However, while diversification can mitigate asset-specific risk, it cannot eliminate market-specific risk. It addresses the risk of owning too much of one particular stock or asset type relative to others, but it cannot protect against broader market downturns if investors collectively show aversion to a particular asset class. For instance, diversification can limit the extent of portfolio decline if certain stocks falter, but it cannot fully safeguard against a widespread market downturn driven by investor sentiment towards stocks as an asset class. Even cash or investments like CDs and high-yield savings accounts are not immune to inflation, although deposits are typically insured against principal loss up to a certain amount. In summary, diversification effectively addresses asset-specific risk but remains powerless against market-specific risk. Investors can benefit from diversification by reducing the impact of individual investment setbacks and achieving a more balanced and resilient portfolio. However, it's crucial to recognize that diversification cannot eliminate all forms of risk in investing. Effective Strategies for Diversification To diversify your investment portfolio effectively, consider these six important tips: Expand Beyond Stocks and Bonds: Look beyond the traditional stocks and bonds combination. Evaluate other asset classes and sectors to avoid overexposure to specific industries or areas. Regularly rebalance your portfolio to maintain proper diversification. Utilize Index Funds for Broad Diversification: Invest in index funds like ETFs or mutual funds that track broad indexes, offering exposure to a diversified portfolio with lower costs and minimal monitoring requirements. Consider the Benefits of Cash: While cash may lose value to inflation, it provides protection during market downturns and offers flexibility to take advantage of investment opportunities during turbulent times. Simplify with Target-Date Funds: Target-date mutual funds automatically adjust the asset allocation as your investment goal, such as retirement, approaches. This hands-off approach can be suitable for those seeking a set-it-and-forget-it strategy. Rebalance Periodically: Regularly adjust your portfolio back to the desired asset allocation to maintain diversification. Rebalancing at least twice a year or quarterly can help align your portfolio with your investment objectives. Think Globally: Consider exploring investment opportunities beyond the U.S. market. Investing in funds focused on emerging markets or Europe can provide exposure to faster-growing economies and reduce the risk of being solely impacted by events in the U.S. Diversify Your Portfolio with CFDs ( Here a Post where I explain What is it CFD ) Adding Contracts for Difference (CFDs) to your portfolio can be an effective diversification strategy. CFDs are financial derivatives that allow investors to speculate on the price movements of various underlying assets without owning them directly. Here's how CFDs can contribute to diversification: Access to Multiple Asset Classes: CFDs provide exposure to a wide range of asset classes, including stocks, indices, commodities, currencies, and bonds. By incorporating CFDs into your portfolio, you can diversify across different asset classes and potentially benefit from the performance of various markets. Leveraged Exposure: CFDs offer leverage, allowing you to trade with a fraction of the total position value, thereby spreading your investment across different markets without fully purchasing them. Hedging and Risk Management: CFDs can be used as a hedging tool to manage risk within your portfolio. For example, you can use CFDs to short sell indices or specific stocks to protect against potential downturns in your physical stock holdings. Trading Opportunities in Different Market Conditions: CFDs offer the flexibility to profit from both rising and falling markets. By capitalizing on different market scenarios, you can potentially generate returns across varying trends. Liquidity and Ease of Trading: CFDs are traded on margin through online platforms, providing ease of access and liquidity. This enables investors to adjust their positions quickly and respond to market opportunities promptly. Incorporating CFDs into your investment portfolio can enhance its stability and potential returns by diversifying across various asset classes and markets. However, it's essential to understand and manage the risks associated with CFD trading, ensuring it aligns with your investment goals and risk tolerance. In conclusion, diversification is a vital tool for investors seeking to manage risk and enhance long-term returns. By owning a mix of assets with different performance characteristics, investors can achieve a balanced and resilient portfolio. Strategies such as expanding beyond stocks and bonds, using index funds, considering cash, simplifying with target-date funds, rebalancing periodically, and thinking globally can contribute to effective diversification. Additionally, incorporating CFDs into your portfolio can further enhance diversification and provide exposure to various asset classes and market opportunities. It's crucial to carefully assess your investment objectives and risk tolerance while implementing diversification strategies to optimize your portfolio's performance in the dynamic landscape of financial markets.
Education
by FOREXN1
9
Balanced Diversification Strategy: A Smart Approach to InvestingThe Balanced Diversification Strategy: A Smart Approach to Investing 📈 Introduction 📈 Welcome, investors! Today, we're talking about a strategy that will help you navigate the stock market. It's called the Balanced Diversification Strategy. In this post, we'll explore how this approach can potentially reduce risk and provide consistent returns by spreading investments across various asset classes. So, let's get started! 📊 Understanding the Strategy 📊 The Balanced Diversification Strategy is a long-term investment approach that aims to achieve a fine balance between risk and reward. Instead of putting all your money into a single investment, it advocates diversifying your portfolio across different asset classes. Here's how it works: Asset Allocation: The first step is determining the percentage of your portfolio allocated to each asset class. This allocation should align with your financial goals, risk tolerance, and investment horizon. A common approach involves distributing funds among stocks, bonds, and cash equivalents. Diversification within Asset Classes: Within each asset class, further diversification is essential. For example, in the stock portion, invest in companies from various sectors and industries. This way, you avoid relying heavily on the performance of a specific company or sector. This way, performance from just one sector does not determine the performance of your entire portfolio. Regular Rebalancing: As market conditions change, your portfolio's allocation might drift from the initial targets. To maintain the desired balance, it's crucial to regularly rebalance your holdings (every month, quarter, or year) depending on your investing timeframe. This involves selling some of the outperforming assets and buying more of the underperforming ones. Dollar-Cost Averaging: Another aspect of this strategy is dollar-cost averaging. Instead of trying to time the market, invest a fixed amount of money at regular intervals, regardless of market conditions. This approach helps mitigate the impact of market volatility on your investments. 🔄 Putting the Strategy into Action 🔄 Let's take a real-world example. Imagine you have $100,000 to invest, and you decide on the following asset allocation: 60% stocks, 30% bonds, and 10% cash equivalents. Within the stock allocation, you further diversify by investing in companies from different sectors like technology, healthcare, finance, and more. Over time, the stock market performs well, and the value of your stocks grows to $70,000, while the bonds and cash remain relatively stable. Due to this growth, the stock allocation now represents 70% of your portfolio, deviating from the initial 60% target. To maintain the balance, you'll need to rebalance your portfolio. You would sell some of your stocks, bringing the stock allocation back to 60%. The proceeds from selling would then be used to increase the bond and cash allocations to match the original percentages. It is important to set a threshold at which you will rebalance: such as 5%, 10%, or just make it a habit to rebalance monthly, quarterly, or annually. 🔒 A Safer Path to Growth 🔒 The Balanced Diversification Strategy is well-suited for a wide range of investors, from those with a conservative risk profile to those more comfortable with risk. By diversifying your investments, you can avoid putting all your eggs in one basket, reducing the impact of potential losses from individual assets. ⚠️ Disclaimer ⚠️ Remember, though this strategy aims to mitigate risk, investing in the stock market always carries inherent risks. Past performance is not indicative of future results. It's vital to do your research and consider seeking advice from a financial professional before making any investment decisions. 📢 Conclusion 📢 In conclusion, the Balanced Diversification Strategy can be an effective way to navigate the ups and downs of the stock market. By spreading your investments across different asset classes and sectors, you can achieve a more balanced and potentially rewarding portfolio over the long term. Happy investing, and may your financial journey be filled with growth and success! 🌟📈
AMEX:SPYEducation
by MindOverMarket
7 Expert Risk Management Techniques for TradingRisk management refers to the techniques used to identify, evaluate, and mitigate the potential risks associated with trading and investing. Whether you are a day trader, swing trader, or scalper, effective risk management can help you minimize losses and protect your hard earned money all while maximizing potential profits. Let's take a look at the top 7 risk management techniques for trading! 👌 Have a Trading Plan Many traders jump into the market without a thorough understanding of how it works and what it takes to be successful. You should have a detailed trading plan in place before making any trades. A well-designed trading plan is an essential tool for effective risk management. A trading plan acts as a roadmap, laying out a set of guidelines/rules that can help traders avoid impulsive decisions. It is crucial because it requires you to think deeply about your approach before you begin risking real money. Having a plan can help you stay calm under stress as your plan will have specific steps to take for anything the market throws at you. It is essential to clearly define your trading goals and objectives. Are you aiming for short-term gains or long-term wealth generation? Are you focused on a specific asset class or trading strategy? Setting specific and measurable goals helps you stay focused and evaluate your progress. Another important part is to describe the trading strategy you will employ to enter and exit trades. This includes the types of analysis you will employ (technical, fundamental, or a combination), indicators or patterns you will rely on, and any specific rules for trade execution. Determine your risk tolerance, set appropriate position sizing rules, and establish stop-loss levels to limit potential losses. The Risk/reward ratio When you are planning to open a trade, you should analyze beforehand how much money you are risking in that particular trade and what the expected positive outcome is. Here is a useful chart with some examples to understand this concept: As you can see from the data above, a trader with a higher RR (risk-reward ratio) and a low win rate can still be profitable. Let’s examine this a little more by looking at a profitable example with a 20% success rate, a RR ratio of 1:5, and capital of $500. In this example, you would have 1 winning trade with a profit of $500. The losses on the other 4 trades would be a total of $400. So the profit would be $100. An unprofitable RR ratio would be to risk, for example, $500 with a success rate of 20% and a risk/reward ratio of 1:1. That is, only 1 out of 5 trades would be successful. So you would make $100 in 1 winning trade but in the other 4 you would have lost a total of -$400. As a trader, you need to find the perfect balance between how much money you’re willing to risk, the profits you’ll attempt to make, and the losses you’ll accept. This is not an easy task, but it is the foundation of risk management and the Long & Short Position Tools are essential. You can use our 'Long Position' and 'Short Position' drawing tools in the Forecasting and measurement tools to determine this ratio. Stop Loss/Take Profit orders Stop Loss and Take Profit work differently depending on whether you are a day trader, swing trader or long term trader and the type of asset. The most important thing is not to deviate from your strategy as long as you have a good trading strategy. For example, one of the biggest mistakes here is to change your stop loss thinking that the losses will recover... and often they never do. The same thing happens with take profits, you may see that the asset is "going to the moon" and you decide to modify your take profit, but the thing about markets is that there are moments of overvaluation and then the price moves sharply against the last trend. There is an alternative strategy to this, which is to use exit partials, that is closing half of your position in order to reduce the risk of your losses, or to take some profits during an outstanding run. Also remember that each asset has a different volatility, so while a stop loss of -3% is normal for a swing trading move in one asset, in other more volatile assets the stop loss would be -10%. You do not want to get caught in the middle of a regular price movement. Finally, you can use a trailing stop, which essentially secures some profits while still having the potential to capture better performance. Trade with TP, SL and Trailing Stop Selection of Assets and Time intervals Choosing the right assets involves careful consideration of various factors such as accessibility, liquidity, volatility, correlation, and your preference in terms of time zones and expertise. Each asset possesses distinct characteristics and behaviors, and understanding these nuances is vital. It is essential to conduct thorough research and analysis to identify assets that align with your trading strategy and risk appetite. Equally important is selecting the appropriate time intervals for your trading. Time intervals refer to the duration of your trades, which can span from short-term intraday trades to long-term investments. Each time interval has its own advantages and disadvantages, depending on your trading style and objectives. Shorter time intervals, such as minutes or hours, are often associated with more frequent trades and higher volatility. Traders who prefer these intervals are typically looking to capitalize on short-term price fluctuations and execute quick trades. Conversely, longer time intervals, such as days, weeks, or months, prove more suitable for investors and swing traders aiming to capture broader market trends and significant price movements. Take into account factors such as your time availability for trading, risk tolerance, and preferred analysis methods. Technical traders often utilize shorter time intervals, focusing on charts, indicators, and patterns, while fundamental investors may opt for longer intervals to account for macroeconomic trends and company fundamentals. For example, If you are a swing trader with a low knack for volatility, then you can trade in assets such as stocks or Gold and ditch highly volatile assets such as crypto. Remember that there is no one-size-fits-all approach, and your choices should align with your trading style, goals, and risk management strategy. Here is a chart of Tesla from the perspective of a day trader, a swing trader, and an investor: Backtesting Backtesting plays a crucial role in risk management by enabling traders to assess the effectiveness of their trading strategies using historical market data. It involves the application of predefined rules and indicators to past price data, allowing traders to simulate how their trading strategies would have performed in the past. During the backtesting process, traders analyze various performance metrics of their strategies, such as profitability, risk-adjusted returns, drawdowns, and win rates. This analysis helps identify the strengths and weaknesses of the strategies, allowing traders to refine them and make necessary adjustments based on the insights gained from the backtesting results. The primary objective of backtesting is to evaluate the profitability and feasibility of a trading strategy before implementing it in live market conditions. By utilizing historical data, traders can gain valuable insights into the potential risks and rewards associated with their strategies, enabling them to manage their risk accordingly. However, it's important to note the limitations of backtesting. While historical data provides valuable information, it cannot guarantee future performance, as market conditions are subject to change. Market dynamics, liquidity, and unforeseen events can significantly impact the actual performance of a strategy. There are plenty of ways to backtest a strategy. You can run a manual test using Bar Replay to trade historical market events or Paper Trading to trade real examples. Those with coding skills can create a strategy using Pine Script and run automated tests on TradingView. Here is an example of the Moving Averages Crossover strategy using Pine Script: Margin allocation We are not fortune tellers, so we cannot predict how assets will be affected by sudden major events. If the worst happens to us and we have all of our capital in a particular trade, the game is over. There are classic rules such as the maximum allocation percentage of 1% per trade (e.g. in a $20,000 portfolio this means that it cannot be risked +$200 per trade). This can vary depending on your trading strategy, but it will definitely help you manage the risk in your portfolio. Diversification and hedging It is very important not to put all your eggs in one basket. Something you learn over the years in the financial markets is that the unexpected can always happen. Yes, you can make +1000% in one particular trade, but then you can lose everything in the next trade. One way to avoid the cold sweats of panic is to diversify and hedge. Some stock traders buy commodities that are negatively correlated with stocks, others have a portfolio of +30 stocks from different sectors with bonds and hedge their stocks during downtrends, others buy an ETF of the S&P 500 and the top 10 market cap cryptos... There are unlimited possible combinations when diversifying your portfolio. At the end of the day, the most important thing to understand is that you need to protect your capital and using the assets available to you a trader can hedge and/or diversify to avoid letting one trade ruin an entire portfolio. Thank you for reading this idea on risk management! We hope it helps new traders plan and prepare for the long run. If you're an expert trader, we hope this was a reminder about the basics. Join the conversation and leave your comments below with your favorite risk management technique! 🙌 - TradingView Team
Education
by TradingView
64
Why the Nasdaq may not capture the full growth potential of AIThe start of 2023 has marked the return of tech growth stocks alongside the surge of generative artificial intelligence (AI) and large language models (LLMs). The biggest tech companies in the world have benefitted from the buzz created by ChatGPT and rapidly rising enthusiasm around AI in general. Nvidia, a leading semiconductor company seen as one of the main AI beneficiaries, has advanced the most within the Nasdaq-100 and even joined the trillion-dollar market cap club just weeks ago. The year-to-date rally of ‘Big Tech’, led by Nvidia, has resulted in a strong return differential of 22.33%1 between the widely followed tech gauge (the Nasdaq-100) and the broad equity exposure (the S&P 500). The top 10 holdings in the Nasdaq-100 by contribution to return (CTR) have jointly posted 30.45% year-to-date, representing more than 82% of the total index return. This advance of the top Nasdaq-100 holdings, capitalising on the buzz around AI, is begging the question from investors whether allocation to the Nasdaq-100 already offers good exposure to the long-term investment potential associated with the AI megatrend. To answer this question, we have to take a step back and think of the concept of megatrends and benchmarks in the portfolio construction process. Benchmarks are usually viewed by investors as a core allocation, while thematic investing is being used as a return enhancement play that benefits from the evolution of various megatrends. In the case of the Nasdaq-100, we can point to several arguments why a thematic strategy focused on the AI theme might be a better option if an investor’s goal is to benefit from the long-term growth potential offered by AI. 1. The AI space represents a wide variety of areas that can achieve wider adoption and success at various points in the future. A targeted AI strategy can build exposure to the theme and its evolving trends through a diversified basket of more pure-play companies involved in various AI activities. In turn, the Nasdaq-100 will tap into the space only through a handful of companies that would offer a less comprehensive and less pure exposure to the theme. 2. A targeted AI strategy has the potential to capture the mega caps of tomorrow early on and with a meaningful weight within the portfolio. Investing in AI through the Nasdaq-100 might be seen by investors as a safe way to avoid losers and focus on more successful AI companies that made it into the benchmark. However, this approach does not allow investors to reap the return potential associated with exciting smaller companies early on. After all, the growth potential driving the returns in the tech space is highest for smaller and younger companies. Investing Tesla and Nvidia (the latest two companies that managed to hit a $1 trillion market cap) in them 3 months after they went public would have resulted in much higher annualised returns in comparison to returns after they joined the Nasdaq-100. In addition, it took both companies around 2-3 years to join the tech benchmark and, after they did, their starting weights were only 0.40%-0.50%. In contrast, thematic strategies might invest in companies shortly after their IPO (initial public offering) dates and might allocate a more meaningful weight to them. 3. A satellite thematic exposure can improve the risk-adjusted portfolio returns through increased diversification. The concept of diversification was first formalised by H. Markowitz as early as in 1952. However, in practice, it’s not feasible to hold all stocks in the investable universe and investors stick to broad benchmarks to build their market exposure. In this situation, thematic investing represents a novel way to split the universe of investable companies and identify promising opportunities aligned with megatrends shaping our future. Relatively low overlap of thematic strategies with broad benchmarks is what makes them particularly attractive for a satellite exposure. Trying to kill two birds with one stone (that is, building a core tech exposure and capturing the potential of the AI theme) by using the Nasdaq-100 could backfire. It could deteriorate diversification and risk-adjusted returns for two reasons: 1) Sticking just to AI companies within the Nasdaq-100 narrows down the return drivers associated with the AI megatrend; 2) Investors increase idiosyncratic risks in their portfolios associated with the biggest tech companies, most likely captured in some other portfolio allocations, for example, the S&P 500. Thematic strategies specifically focused on AI might represent a better option for investors seeking to benefit from the long-term growth potential associated with the megatrend in contrast to the theme exposure offered through the Nasdaq-100. When selecting the specific AI strategy it’s important to understand how each strategy captures the space and to align it with investor’s beliefs about the future development of the megatrend. Diversification benefits and potential return drivers associated with the theme are yet other important considerations that help to govern the strategy selection process. Sources 1 As of 27 June 2023. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
NASDAQ:NDX
by aneekaguptaWTE
In-Depth Guide to DiversificationThe cardinal rule of investing — diversification — is a strategy as old as the hills. This time-tested principle, akin to the aphorism "don't put all your eggs in one basket," is a risk management strategy that mixes a variety of investments within a portfolio. The rationale being, a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. This article provides a comprehensive exploration of diversification, discussing its various strategies, types, and why it plays such a pivotal role in investment portfolio management. Understanding Diversification Strategies An effective diversification strategy requires careful consideration of the investor's risk tolerance, investment goals, time horizon, and the correlation between different asset classes. Here are some key diversification strategies that have demonstrated effectiveness over time: 1. Asset Allocation : This is perhaps the most common strategy, which involves spreading investments across different asset classes such as stocks, bonds, commodities, real estate, and cash equivalents. Each of these asset classes has unique characteristics and responds differently to market conditions. When one asset class is performing poorly, another may be outperforming, thereby balancing out the potential losses. 2. Sector Diversification : Within each asset class, investments can be further diversified across different sectors or industries such as healthcare, technology, energy, or consumer goods. This strategy aims to mitigate sector-specific risks, such as regulatory changes or cyclical fluctuations, which can significantly impact a particular industry. 3. Geographical Diversification : This strategy entails spreading investments across different countries or regions. It is particularly useful in today's globalized markets as it provides a hedge against risks associated with a single economy or geopolitical area. The performance of markets across different regions can vary greatly due to factors like political stability, economic policies, currency strength, and more. 4. Diversification by Investment Style : This approach involves diversifying across various investment styles such as value investing (buying stocks that appear to be trading for less than their intrinsic value), growth investing (investing in companies that are expected to grow at an above-average rate), and income investing (focusing on securities that generate significant and sustainable income). These styles often perform differently under various market conditions, which can contribute to portfolio diversification. 5. Dollar-Cost Averaging (DCA) : Although not a diversification strategy per se, DCA can complement diversification to further mitigate risk. This strategy involves regularly investing a fixed amount in a particular asset, which results in purchasing more units when prices are low and fewer units when prices are high, thereby potentially reducing the average cost per unit over time. Delving into the Types of Diversification The types of diversification reflect the various strategies mentioned above and add another layer to how investors can approach building a well-diversified portfolio: 1. Asset Diversification : This involves spreading investments across different asset classes to reduce the sensitivity to any single asset class's performance. 2. Sector Diversification : This involves spreading investments across various sectors or industries to insulate the portfolio against industry-specific risks. 3. Geographic Diversification : This strategy involves investing in different geographic regions to safeguard against the risks inherent in any single economy. 4. Capitalization Diversification : This type of diversification involves investing in companies of different sizes — large-cap, mid-cap, and small-cap. Each category responds differently to economic conditions, which can provide a balanced portfolio. 5. Style Diversification : This involves diversifying between different investment styles like growth, value, and income investing, each of which may perform differently in various market conditions. The Undeniable Importance of Diversification Diversification plays a crucial role in managing investment portfolios for several reasons: 1. Risk Management : Diversification helps reduce the risk of the overall investment portfolio. By spreading investments across various assets, sectors, and regions, the negative performance of one component can be offset by the positive performance of another. 2. Potential for Higher Returns : Diversified portfolios expose the investor to a broader range of investment opportunities and thus have the potential to generate higher long-term returns. 3. Reduced Portfolio Volatility : Diversification can help smooth out investment returns over time. Even if one investment performs poorly, others may perform well, leading to a less volatile portfolio overall. 4. Preservation of Capital : By limiting exposure to any single investment, diversification can help protect an investor's capital, which is particularly important for those nearing retirement or with lower risk tolerance. Conclusion The importance of diversification in the realm of investing cannot be overstated. It provides a level of insulation against severe market downturns and unforeseen sector or company-specific events. It allows investors to reach for returns while managing the level of risk they are comfortable with. While diversification is an effective strategy to manage risk and potentially enhance returns, it is crucial to remember that it does not guarantee profits or fully protect against losses in declining markets. It should be used as a component of a well-rounded investment strategy, in conjunction with ongoing market analysis, regular portfolio reviews, and adjustments as necessary. Every investor's situation is unique, and thus, their diversification strategy should be customized to their specific needs and goals.
AMEX:SPYEducation
by BiggWigg
Diversification using TradingView ToolsHow to diversify your portfolio and trade across different markets and asset classes using Tradingview's data and charts Diversifying your portfolio is one of the most important strategies for reducing risk and increasing returns in the long term. By investing in different markets and asset classes, you can benefit from the different performance cycles and correlations of each asset, and avoid putting all your eggs in one basket. However, diversifying your portfolio can also be challenging, especially if you are not familiar with the different markets and asset classes available. How do you know which assets to choose, how much to allocate to each one, and how to monitor their performance over time? This is where TradingView can help you. TradingView is a powerful platform that provides you with data and charts for thousands of assets across various markets and asset classes, such as stocks, forex, cryptocurrencies, commodities, indices, futures, options, and more. You can use TradingView to research, analyze, and trade these assets with ease and convenience. In this article, we will show you how to diversify your portfolio and trade across different markets and asset classes using TradingView's data and charts. We will cover the following topics: - How to access data and charts for different markets and asset classes on TradingView - How to use TradingView's tools and features to research and analyze different assets - How to use TradingView's indicators and strategies to identify trading opportunities and signals - How to use TradingView's brokers and trading platforms to execute trades on different assets - How to use TradingView's portfolio and watchlist tools to monitor and manage your diversified portfolio By the end of this article, you will have a better understanding of how to diversify your portfolio and trade across different markets and asset classes using TradingView's data and charts. Let's get started! One of the benefits of diversifying your portfolio is that you can take advantage of the different performance cycles and correlations of different markets and asset classes. For example, stocks tend to perform well during periods of economic growth and expansion, while bonds tend to perform well during periods of economic slowdown and contraction. Similarly, commodities tend to perform well during periods of inflation and supply shocks, while cryptocurrencies tend to perform well during periods of innovation and disruption. However, to diversify your portfolio effectively, you need to have access to data and charts for different markets and asset classes. This is where TradingView can help you. TradingView is a platform that provides you with data and charts for thousands of assets across various markets and asset classes, such as stocks, forex, cryptocurrencies, commodities, indices, futures, options, and more. You can use TradingView to research, analyze, and trade these assets with ease and convenience. To access data and charts for different markets and asset classes on TradingView, you can use the search bar at the top of the page. You can type in the name or symbol of the asset you want to view, or you can browse through the categories and subcategories on the left side of the page. For example, if you want to view data and charts for stocks, you can click on the "Stocks" category on the left side of the page, and then choose from the subcategories such as "US Stocks", "UK Stocks", "Canadian Stocks", etc. You can also filter by sectors, industries, market cap, dividends, earnings, etc. Once you select an asset, you will see its data and chart on the main page. You can customize the chart by changing the time frame, adding indicators, drawing tools, annotations, etc. You can also compare the performance of different assets by adding them to the same chart. For example, if you want to compare the performance of gold and bitcoin over the last year, you can add them to the same chart by typing in their symbols in the search bar (XAUUSD for gold and BTCUSD for bitcoin) and clicking on "Compare". You will see their data and charts overlaid on each other. You can also use TradingView's tools and features to research and analyze different assets. For example, you can use TradingView's screener tool to scan for assets that meet your criteria based on various fundamental and technical factors. You can also use TradingView's news feed to stay updated on the latest developments and events that affect different markets and asset classes. You can also use TradingView's social network to interact with other traders and investors who share their ideas and opinions on different assets. TradingView also provides you with indicators and strategies that can help you identify trading opportunities and signals for different assets. Indicators are mathematical calculations that are applied to the price or volume data of an asset to generate signals or patterns that indicate the direction or strength of a trend or a reversal. Strategies are sets of rules that define when to enter and exit a trade based on certain conditions or criteria. TradingView has hundreds of indicators and strategies that you can use or create your own using TradingView's Pine Script language. To use TradingView's indicators and strategies, you can click on the "Indicators" button at the top of the chart. You will see a list of categories such as "Trend", "Momentum", "Volatility", etc. You can choose from the built-in indicators or search for custom indicators created by other users or yourself. You can also click on the "Strategies" button at the top of the chart to see a list of categories such as "Long", "Short", "Scalping", etc. You can choose from the built-in strategies or search for custom strategies created by other users or yourself. Once you select an indicator or a strategy, you will see it applied to your chart. You can adjust its settings by clicking on its name at the top of the chart. You will see its parameters such as inputs, outputs, alerts, etc. You can change these parameters according to your preferences or needs. You will also see its performance report that shows its statistics such as net profit, win rate, drawdown, etc. You can use this report to evaluate its effectiveness and suitability for your trading style and goals. TradingView also allows you to execute trades on different assets using its brokers and trading platforms. Brokers are intermediaries that connect you with the markets and allow you to buy and sell assets for a fee or commission. Trading platforms are software applications that enable you to place orders, manage your positions, monitor your account balance, etc. TradingView has partnered with several brokers and trading platforms that offer access to various markets and asset classes. To start trading on TradingView, you need to connect your broker account or trading platform to your TradingView account. TradingView supports many popular brokers and platforms, such as Oanda, FXCM, Coinbase, Binance, Interactive Brokers, and more. You can find the full list of supported brokers and platforms here: www.tradingview.com To connect your broker account or platform, go to the Trading Panel at the bottom of your chart, click on the Select Broker button, and choose your broker or platform from the list. Then follow the instructions to log in and authorize TradingView to access your account. Once you have connected your broker account or platform, you can start executing trades on different assets directly from your TradingView charts. To open a trade, click on the Buy/Sell button on the Trading Panel, select the asset you want to trade, enter the quantity, price, stop loss, and take profit levels, and click on Confirm. You can also use the One-Click Trading feature to open trades with one click on the chart. To enable One-Click Trading, go to the Settings menu on the top right corner of your chart, click on Trading Settings, and check the One-Click Trading box. Then you can click on the Bid or Ask price on the chart to open a buy or sell trade respectively. To monitor and manage your open trades, you can use the Orders and Positions tabs on the Trading Panel. Here you can see your order history, current positions, profit and loss, margin level, and account balance. You can also modify or close your orders and positions by clicking on the Edit or Close buttons. You can also use the Trade Manager tool to manage your trades more efficiently. The Trade Manager tool allows you to set multiple targets and stop losses for each trade, as well as trailing stops and break-even levels. To access the Trade Manager tool, right-click on your position on the chart and select Trade Manager. To monitor and manage your diversified portfolio across different brokers and platforms, you can use TradingView's portfolio and watchlist tools. The portfolio tool allows you to see your total portfolio value, asset allocation, performance, risk metrics, and more. You can also compare your portfolio with various benchmarks and indices. To access the portfolio tool, go to www.tradingview.com The watchlist tool allows you to create custom lists of assets that you want to track and analyze. You can add any asset that is available on TradingView to your watchlist, such as stocks, forex pairs, cryptocurrencies, commodities, indices, etc. You can also sort, filter, group, and customize your watchlist columns according to your preferences. To access the watchlist tool, go to www.tradingview.com TradingView's brokers and trading platforms integration and portfolio and watchlist tools are powerful features that can help you execute trades on different assets and monitor and manage your diversified portfolio more effectively. We hope this article has given you a clear overview of how to use these features. Happy trading!
BITSTAMP:BTCUSDEducation
by JS_TechTrading
RISK MANAGEMENT STRATEGIES There are several risk management strategies that can be used to help mitigate potential losses and increase the chances of success in any investment or trading endeavor. Here are a few common risk management strategies: Diversification is an essential risk management strategy that involves spreading your investments across different markets, asset classes, and securities. The goal of diversification is to reduce the overall risk in your portfolio by minimizing the impact of any single investment or market on your portfolio. When you diversify your portfolio, you spread your investments across different asset classes such as stocks, bonds, and commodities. You also diversify across different markets, such as domestic and international markets, and across different sectors, such as healthcare, technology, and consumer goods. By diversifying across different asset classes, markets, and sectors, you can help balance out potential losses in any one area. For example, if you have all of your investments in the stock market, you are vulnerable to a significant loss if the stock market experiences a downturn. However, if you have some investments in bonds or commodities, those investments may perform well during a market downturn, helping to offset your losses in the stock market. Additionally, diversification can help you take advantage of opportunities in different markets and sectors. For example, if the stock market is experiencing a downturn, other markets, such as commodities or international markets, may be performing well. By diversifying your investments, you can take advantage of these opportunities and potentially improve your overall returns. It's important to note that diversification does not guarantee a profit or protect against loss, but it can help reduce the overall risk in your portfolio. However, diversification requires careful planning and ongoing management. You should regularly review your portfolio and make adjustments to ensure that your investments remain diversified and aligned with your goals and risk tolerance. Diversification is a critical risk management strategy that can help reduce the impact of any single investment or market on your portfolio. By spreading your investments across different markets, asset classes, and securities, you can help balance out potential losses and take advantage of opportunities in different areas. Setting stop losses is a vital risk management strategy that involves setting a predetermined price point at which you will sell a security to limit potential losses on any given trade. Stop losses are commonly used by day traders and other active investors to protect their portfolio from large drawdowns and minimize potential losses. The concept of a stop loss is relatively simple. When you buy a security, you set a price point at which you are willing to sell the security if the price drops to a certain level. This level is known as the stop loss level. If the security's price reaches the stop loss level, the security is sold automatically, limiting your potential losses. The main benefit of using stop losses is that they allow you to manage risk effectively. By setting a stop loss, you limit the amount of money you can potentially lose on any given trade. This can help prevent large drawdowns and protect your portfolio from significant losses. Stop losses are also valuable because they help you avoid emotional trading decisions. When you have a predetermined stop loss level, you can take the emotion out of trading decisions. This can help prevent you from holding onto losing trades for too long, which can result in even greater losses. However, it's important to note that setting stop losses is not foolproof. In fast-moving markets or markets with low liquidity, a stop loss order may not execute at the desired price, resulting in losses greater than expected. Additionally, setting stop losses too close to the market price may result in the order executing prematurely, potentially missing out on gains. Setting stop losses is an important risk management strategy that can help protect your portfolio from significant losses. By setting a predetermined price point at which you are willing to sell a security, you can limit potential losses and avoid emotional trading decisions. However, it's essential to use stop losses carefully and adjust them as needed to ensure that they are aligned with your goals and risk tolerance. Position sizing is an important risk management strategy that involves determining the appropriate amount of capital to allocate to each trade based on the level of risk involved. Position sizing is critical because it helps you manage the risk in your portfolio and avoid overexposure to high-risk positions. The idea behind position sizing is to ensure that the amount of capital you allocate to each trade is proportionate to the level of risk involved. For example, if you're taking on a high-risk trade, you'll want to allocate less capital to that trade to limit the potential losses. Conversely, if you're taking on a low-risk trade, you may allocate more capital to that trade. Position sizing can be calculated in various ways, but the most common method is to use a percentage of your account balance for each trade. For example, if you have a $100,000 account and you decide to risk 2% of your account on each trade, you would allocate $2,000 to each trade. By carefully managing position sizing, you can limit the impact of any single trade on your portfolio. If you allocate too much capital to a single trade, you run the risk of losing a significant portion of your portfolio if that trade goes wrong. On the other hand, if you allocate too little capital to a trade, you may miss out on potential gains. Position sizing is also essential for avoiding overexposure to high-risk positions. If you have too much capital allocated to high-risk trades, you run the risk of suffering significant losses if those trades go wrong. By carefully managing position sizing, you can ensure that you have a well-diversified portfolio with appropriate levels of risk. Position sizing is a critical risk management strategy that helps you manage the risk in your portfolio by determining the appropriate amount of capital to allocate to each trade based on the level of risk involved. By carefully managing position sizing, you can limit the impact of any single trade on your portfolio and avoid overexposure to high-risk positions. The risk-reward ratio is an important risk management tool that can help you make more informed trading decisions. The ratio measures the potential return on investment against the amount of risk involved in a particular trade. By focusing on trades with a favorable risk-reward ratio, you can increase your chances of success and limit potential losses. The risk-reward ratio is typically expressed as a ratio of the potential reward to the potential risk. For example, if you're considering a trade where the potential reward is $2,000 and the potential risk is $1,000, the risk-reward ratio would be 2:1. A favorable risk-reward ratio means that the potential reward is greater than the potential risk. By focusing on trades with a favorable risk-reward ratio, you can increase your chances of success. This is because you're only taking on trades where the potential reward outweighs the potential risk. This means that even if some trades don't work out, you can still make a profit if the majority of your trades have a favorable risk-reward ratio. One of the benefits of the risk-reward ratio is that it helps you avoid emotional trading decisions. By focusing on the potential reward relative to the potential risk, you can take the emotion out of trading decisions. This can help prevent you from taking on trades with too much risk or holding onto losing trades for too long. It's important to note that a favorable risk-reward ratio doesn't guarantee success. Even trades with a high potential reward relative to the potential risk can still result in losses. However, by focusing on trades with a favorable risk-reward ratio, you can limit potential losses and increase your chances of success over the long run. The risk-reward ratio is an essential risk management tool that measures the potential return on investment against the amount of risk involved. By focusing on trades with a favorable risk-reward ratio, you can increase your chances of success and limit potential losses. It's important to use the risk-reward ratio in conjunction with other risk management strategies to ensure that you have a well-diversified and balanced portfolio. Staying informed is an essential risk management strategy for day traders. It involves keeping up-to-date with the latest news and developments in the market, both on a macroeconomic level and for individual securities. By staying informed, traders can identify potential risks and opportunities and adjust their trading strategies accordingly. There are many ways to stay informed as a day trader. One of the most important is to keep an eye on financial news sources, such as Bloomberg, CNBC, and The Wall Street Journal. These sources can provide valuable insights into market trends, company news, and other factors that can impact your trades. Many day traders also use social media, such as Twitter and Reddit, to stay informed about the latest news and trends in the market. Staying informed also means staying up-to-date on changes in regulations, economic indicators, and other macroeconomic factors that can impact the market. For example, changes in interest rates, trade policies, or fiscal policy can have a significant impact on market performance. By staying informed about these factors, traders can adjust their trading strategies accordingly and make more informed trading decisions. In addition to staying informed about the market, traders should also stay informed about their individual securities. This means monitoring earnings reports, company news, and other developments that can impact the price of a particular security. By staying informed about individual securities, traders can make more informed decisions about when to buy, sell, or hold a particular security. Staying informed is an essential risk management strategy for day traders. By staying up-to-date on the latest news and developments in the market, traders can identify potential risks and opportunities and adjust their trading strategies accordingly. Staying informed involves monitoring financial news sources, social media, macroeconomic factors, and individual securities to make more informed trading decisions. Overall, effective risk management involves a combination of these and other strategies, as well as careful planning, discipline, and a commitment to a sound trading strategy. By using these techniques and remaining focused on your goals, you can better manage risk and increase your chances of success in any investment or trading endeavor. STAY GREEN
AMEX:SPYEducation
by UnknownUnicorn37963351
Security National Financial SNFCALadies and Gentlemen, if you're looking for an investment with a little bit of everything, look no further than Security National Financial Corporation! This holding company operates a diverse portfolio of businesses, including funeral services, mortgage lending, and insurance. With a strong market position and experienced management team, this company has got the goods to keep on growing. And the best part? They've got the financials to back it up - consistently posting strong revenue growth and a rock-solid balance sheet. Now, of course, no investment is without risk. Real estate market fluctuations and regulatory changes are always a concern. But, overall, Security National Financial Corporation is a well-rounded investment opportunity with a lot of potential.
NASDAQ:SNFCALong
by DCAChampion
CTPNV(1D) - Long term setup on Investment properties Hi Traders // Investors, A short thought to a lesser-known company which invest into commercial warehouse and office space facilities. In my opinion it can be very good longterm investment for diversification of stock-portfolio. Considering increasing growth of e-commerce and many big companies relocating to outskirts of big cities (near motorways), there will be increased interest in modern / high quality buildings. Check their annual / quarterly report. Management is highly skilled and also highly invested in stock. (Major owner). The rest is up to YOU... Do your homework ;)
EURONEXT:CTPNVLong
by Longevity_Contrarian
Diversify your strategyThe holy grail of diversification is to find several uncorrelated asset classes all with positive returns. One problem, though, is that diversified passive investing has caused all asset classes to become more and more correlated over time. Increasingly, you see stocks, bonds, commodities, and cryptocurrencies all move together. One approach to diversification that's increasingly popular with quants is to diversify your strategies rather than your asset classes . Long-short strategies are a popular example. Almost by definition, your short strategies will make money when your long strategies lose money, and vice versa. The challenge of making this work is that it's really hard to design short strategies with positive expected return. Since the market tends to go up over time, playing the market short is a bit like betting against the house at a casino. If you find a short strategy that actually works, that's gold right there. Fortunately, there are some relatively uncorrelated strategies that work for long-only traders. This chart shows the Invesco "Momentum" and "Pure Value" ETFs. As you can see from the red and green arrows, the two ETFs often move in opposite directions. When one is producing positive returns, the other often isn't. Owning both can help smooth out your drawdowns and returns. The same can be said for "mean-reversion" and "trend-following" strategies. Mean-reversion strategies involve buying assets that have made a big move downward. If you bought China stocks after their recent huge-selloff, that was a mean-reversion trade. Trend-following strategies, by contrast, involve buying assets that have made a big move upward. If you've bought oil and gas stocks in recent weeks, that was a trend-following trade. Both strategies tend to "work," but again, they're somewhat uncorrelated. These strategies can further be broken down into short-term and long-term versions. Oil and gas is in a short-term uptrend, while the Nasdaq index is in a long-term uptrend. Facebook and Bristol-Myers Squibb are a short-term mean-reversion candidates after their recent sell-offs, while Calavo Growers and Regis Corporation are long-term mean-reversion candidates. The nice thing about using a mixture of short-term and long-term signals is that they allow you both to profit from stable market conditions and to quickly pivot at least some of your capital when market conditions change.
MEducation
by ChristopherCarrollSmith
I'm buying weakness in Chilean stocksAfter the IPCC's recent report showing that the North Atlantic Current may be on its last legs, I decided that I needed to diversify away from the US and Europe a bit. (If the North Atlantic Current fails, it would cause massive, disruptive climate change for Europe and North America.) So I committed to look for opportunities in some country ETFs. The one I've been buying is $ECH, the iShares Chile ETF. Chile stocks are beaten down because of currency weakness amid heavy pandemic spending, but honestly their debt-to-GDP ratio is still one of the world's best at just 27%. (Contrast the US at 107% and Japan at 238%.) Chile has had a highly effective vaccine rollout, with the world's sixth highest vaccination rate. (With 67.2% of Chileans fully vaccinated, they lag behind a few much smaller countries, like Malta and Iceland.) Thanks to pandemic UBI and a high vaccination rate, Fitch yesterday raised its 2021 real GDP growth forecast for Chile from 6.1% to 8.3%, making Chile one of the world's fastest growing economies this year, trailing just behind China's 8.4%. But whereas China ETFs trade at 14x cash flow and yield 1.1%, $ECH trades at less than 5x cash flow with a distribution yield of 2.34%. There is, undoubtedly, some political risk when buying a Latin American ETF. Latin America is notorious for its political instability, and Chile is no exception. Chile currently ranks 19th in the world for economic freedom, and its current leader is a Harvard-trained economist and business engineer. But he's also wildly unpopular due to excessive use of force against protesters the last couple years. The country is currently in the process of drafting a new national constitution, and many of the constitutional delegates lean left. It remains to be seen what shape the future government of Chile might take. Despite the uncertainty, the immediate future for Chile looks relatively bright. At this valuation and with this GDP growth rate, I've bought a modest stake and plan to hold for the forseeable future.
CBOE:ECHLong
by ChristopherCarrollSmith
4
MrRenev portfolio exposedHere is my current short term portfolio. This might give the reader an idea of how a moderately diversified short term portfolio might look. I use various tools (including turbos, options...) so it's hard to say how much I have in, but I know how much of original risk I got. Which is today €500. I added my little XRP bag from earlier this year to my crypto holdings to get to exactly 500. It makes more sense to build a PF looking at risk rather than the size that doesn't mean anything by itself. Of course I have some winners and I have trailed my stop so this is why I precise "original" risk, that's the risk when I opened the position. The whole thing is maybe €40,000 with €25,000-€30,000 in Forex which would make it around 70% but it is less volatile, in "risk" terms it's actually 30%. Entry stops are tight (for example 0.50% with FX, 2% with S&P, 1% with commodities depends). I am sure I have 25 to 30K in FX, it's the rest that is hard to evaluate. Here is the detail: 30% - Forex: 2 longs on the Yen, 2 shorts on AUD, and short USDZAR. 25% - Commodities: Gold, Platinum, Natural Gas. All long. 23% - Indices: All in the S&P500 long, pyramided in since April. 12% - Crypto: Mostly Bitcoin. And a bit of XRP (it's less than 6 month old). 10% - Stocks: Pfizer & Moderna. I also have a few stocks & cryptos that I hold long term and have not listed here. And cash in the bank. And physical goods in my house. I even have stamps and a few old coins. I don't check on it every day, or week, or month, or year, but I really don't care about the long term stuff, I am focussed on the long term. Looks like I have found a perfect trick to not worry. I am not "ultra" diversified, but some billionaires have hinted that diversification may be for idiots. If you saw Ray Dalio present his "holy grail" you know that (roughly) you get a huge improvement in risk adjusted returns going from 1 to 5 (good) positions, a little more improvement going from 5 to 10, and it basically flatlines past 10 positions no matter how much you add. This is universally true, I'm sure it can be proven by a mathematician and the limit of growth will be Euler's number 2.718 (like maybe the stdev can only be improved 2.718X?), no matter how many uncorrelated positions are added. The reasons for having dozens of positions is either you're such a whale you have to, or you're trying to attract clients and plenty of positions makes you look pro and justifies the cost and also makes it look too complicated to do for a novice. My positions shown here are all short term, with: FX and Commodities and Stocks (65%) all under 2 months S&P500 and Crypto (35%) all under 6 months I have been long US indices since September or October of 2020 but it was tech100 and I closed it all since then. 33% of my holdings are correlated to the US stock market but I am in the green on the S&P and have guaranteed stops, I have pyramided into my winner over time, so there is actually no major risks there. I am not a professional risk manager and I don't give advice but I don't think I have crazy risks. No single instrument (a currency, an indice) ever has a leverage over 5 (when adding all pairs or all correlated indices). The max leverage I have been using on a position ever as far as I can recall is 2 (0.25% stop loss with a leverage of 2 = risk of 0.50% on the single position). Anyone who understands elementary school level maths should be able to understand the problem with too much volatility: A 3% drawdown takes a 3.09% profit to get back to breakeven. This is 3% more (3.09% is 3% more than 3%). A 10% drawdown takes an 11.11% profit to get back to breakeven. This is 11.11% more. A 30% drawdown takes a 42.9% profit to get back to breakeven. This is 42.9% more. A 70% drawdown takes a 233.33% profit to get back to breakeven. Good luck. Simply since this is short term there will be much more volatility, so careful with leverage! (Indeed, if a long term portfolio had say 15% deviation happen every 100 years, the short term one could have this every 100 months or even 100 weeks). And then there are the black swan events... They don't happen but when they do it stings. And in one's career they WILL happen. Bill Hwang got destroyed by having 5 leverage on all his money, concentrated in a few stocks. The "Swiss Franc Tsunami" was a 15% drop. You'd have to be a complete mongrel to get wiped out, that would require over 6 leverage on a single currency. Legend james Cordier had next to 100 leverage divided between only half a dozen commodities, he was riding at least a 10X on NatGas alone. Even if you had 10 leverage on stocks but distributed in 10 a 20% gap down wouldn't wipe you out it's very unlikely they ALL gap down. Don't go 10X in stocks even if diversified, that was just for the example, in the EU it's not even possible anyway max is 5. I even posted ideas for some of those positions With Bitcoin I think I post everything. Not sure. Almost 1 year ago, "buy area visited", hah I actually bought the very bottom. As I said this is nearly 1 year old but I moved to the S&P500 back in April to catch a new swing. 2 different trades within a long term bull bias. Buying pullbacks with tight stops you get stopped often but you also buy the very bottom often. I probably mentioned my transition to the S&P500 somewhere but without details and I don't write every single time I add or take profit or reduce my position. Might add a bit to crypto if it keeps going. Hopefully I get to short GME soon, should reduce my overall stock risk, maybe. It can always shoot up while the rest crashes down, I don't think this is likely it's a 1/100 thing, it does happen, and you want to make sure you'll survive it, but it doesn't happen that often so it's worth taking the risk. Typicall I might have something like this: 10 positions 2 wins I'm trailing (> 5R) 3 little wins trying (2.5-4.5R) 5 positions around my entry (between -1R and 2.5R) I rarely see red in my accounts, losers go quite fast. So mostly I look at positions in the green. It has the benefit of feeling good. Losers hold losers, that simple. Individual positions are very volatile, I might see a currency pair have a drastic move against me and crush my soul, but then I log in my accounts and I see my overall profits have not moved much, while the 1 pair was crashing 3 other ones sligthly went up. So it makes it more of a slow and steady growth rather than some hysterical bipolar game.
Education
by MrRenev
3
Six ETFs with an interesting thesisDiversifying your strategy There are lots of ways to "win" at investing. For diversification, it can be useful to bet on a lot of different strategies, because often when one strategy starts to go wrong, another will start to go right. But unless you're an expert coder with a lot of free time, you probably can't actively manage multiple different strategies yourself. That's where ETFs come in. ETFs can be great for diversifying your strategy without the hassle of actively managing your portfolio yourself. In this post, I'll look at several different ETFs that have a novel and interesting investing thesis. I don't necessarily endorse all of these, but I think they're worth a look. 1. The Sparkline Intangible Value ETF I've been following Sparkline for a while now, and they consistently put out some of the best investing research I've seen. Basically, Sparkline's thesis is that traditional metrics of value-- especially the price-to-book ratio-- don't work anymore in our technology-driven economy. More and more, what determines a company's value are "intangibles" like patents, talent, network effects, branding, and customer loyalty. Sparkline has developed ways to "measure" each of these intangible categories. For instance, a good proxy for "talent" is how many PhDs and Ivy Leaguers are employed at a firm. Sparkline plugs these variables into a machine learning model to come up with a sense of which firms are a good "value" when you include intangibles in the calculation. I've been reading this research for months and scratching my head trying to figure out how to implement it in my own investing, so I was pretty excited when they launched an ETF at the end of last month. Top holdings of $ITAN include the FAANGM stocks, Nvidia, Intel, and Cisco. It's tech heavy, but you've also got other sectors well represented, from communications and pharmaceuticals to banks, retail stores, and automakers. We only have a few days of data for $ITAN, so it's pretty meaningless to compare returns, but it has so far underperformed the index with a return of 1.7% vs. 3.1% for $SPY. 2. The iShares MSCI USA Momentum Factor ETF In the scientific literature on technical analysis, one of the only indicators that seems to actually beat the market is momentum. The iShares Momentum Factor ETF buys large- and mid-cap stocks with high price momentum. Now, it may be that momentum will stop working at some point in the future, because market conditions change. But for now, it seems to work. $MTUM has returned 280% since its inception in 2013, compared to 235% for $SPY. 3. iShares MSCI USA Quality Factor ETF Also a strong performer in the quantitative investing literature is the "quality" factor. Quality is defined as "high return on equity, stable year-over-year earnings growth, and low financial leverage." In other words, non-capital-intensive businesses with stable growth and low debt. The $QUAL ETF does a pretty decent job achieving sector-neutral exposure to the quality factor. To be honest, it tends to be a little expensive in terms of the price multiples of the stocks it buys. Maybe wait for a dip? $QUAL has returned 212% since inception, vs. 204% for $SPY. 4. Freedom 100 Emerging Markets ETF Let's say you want exposure to emerging markets, but you're worried about exposure to China or other bad-actor governments. The Freedom 100 ETF may be what you're looking for. Heavily weighted toward Taiwan, South Korea, Chile, and Poland, $FRDM is based on quantitative econ research that shows that countries with higher "economic freedom" scores tend to experience greater prosperity and economic growth. Thus, $FRDM makes active "freedom-weighted" bets on emerging markets: "Country selection and weights are based on composite freedom scores derived from 76 quantitative variables measuring each country’s level of protection for both personal and economic freedoms." Think of this like the ESG emerging markets fund. Since inception, $FRDM has returned 34% vs. 32% for $EEM. 5. Pacer 100 Cash Cows 100 ETF Companies these days use a lot of fuzzy accounting: EBITDA and adjusted EBITDA in particular. Usually P/E ratios are calculated with non-GAAP earnings measures that have been heavily adjusted. This makes modeling and forecasting easier, because non-GAAP earnings are a lot less "lumpy" than GAAP earnings are. But if you want to invest based on "real" earnings and "real" value, you should really be using GAAP earnings or free cash flow. Free cash flow is the cash remaining after expenses, interest, taxes, and long-term investments. The companies that generate a lot of free cash flow are the ones that are genuinely profitable, and not just profitable on paper. Investing in free cash flow is the thesis behind the Pacer 100 Cash Cows ETF. Free cash flow can be used for capital expenditures like R&D, for paying dividends, for buying back shares, or for acquiring other companies. Having lots of free cash flow is especially beneficial in a bear market, when asset prices are cheap and credit is tight. Why? Because a bear market is a great opportunity for a cash-rich company to buy back shares or snap up assets at an extremely low price. Just look at how the Pacer Cash Cows ETF outperformed the S&P 500 during the recovery from the Covid-19 pandemic: M&A deals and cheap share buybacks helped propel the cash cows to stardom. But you can also see that during bull markets with high valuation multiples, the cash cows have lagged. $COWZ has returned just 93% vs. 112% for $SPY. I worry that $COWZ, like lots of value ETFs, is exiting stocks too quickly rather than holding them to maturity. Since it only holds the 100 cheapest FCF stocks at a time, it ends up only keeping the ones that stay cheap, which may be the lowest quality companies. You might do better to just buy some of $COWZ's higher-quality holdings and hold them forever. 6. Invesco S&P 500 Equal Weight ETF Over the long run, the equal-weighted S&P 500 index has outperformed the cap-weighted S&P 500 index. There may be a few reasons for that. First, base effects mean that small companies can grow faster in percentage terms than large ones. Second, investors pay a premium for big companies because they perceive them as lower risk. But if you average the risk across a lot of small companies, it's a lot less risky and you end up getting a discounted price overall. Third, cap-weighted indexes are kind of nuts, if you think about it. We're going to buy the most expensive companies, making them even more expensive. We're going to broadcast exactly what we intend to buy, and the basis on which we're making that decision. And literally everyone in the market is going to pile into this trade. Here's the problem: this system can be gamed . All you need is, for instance, a subreddit full of rowdy retail traders to realize that they can pump some tiny stock like GameStop up to an extremely high market cap, and then the indexes will be forced to buy it. Cap-weighted indexes probably get bullied into buying a lot of overpriced companies like Tesla that might not actually be good value for money. Buying equal weight avoids this exploit. What are your favorite ETFs? I'm always on the hunt for a good new strategy or investing thesis and would love to hear from you. What are your favorite ETFs? What's an ETF with an interesting thesis? What ETFs might be good for diversification, or might hold up well if market conditions change?
AMEX:ITANLong
by ChristopherCarrollSmith
8