New Robot model ?

[manucastle]

Pascal/Billy.

Any clues on which new Robot instrument we will get next ?

Trev

[Pascal]

We have been working on a 20DMF based SPY robot.
This Robot produces better returns than the 20DMF, but worst returns than the IWM Robot.

We have decided not to publish this SPY robot for now.
We'll be looking at the QQQ's and/or an energy linked robot.

I wonder what Robot this group would prefer to get.


Pascal

[Mike]

Pascal,

Given the possible monetary defaults and currency debasement that seem to be inevitable it seems to me that the most important service to the community would be Robot that is commidity based.

Mike Scott
Tarzana, CA

[manucastle]

Pascal,

Given the possible monetary defaults and currency debasement that seem to be inevitable it seems to me that the most important service to the community would be Robot that is commidity based.

Mike Scott
Tarzana, CA

Mikes idea of a commodity based Robot is a good one. Also a new 3x long/short ETF has just appeared - Direxion Daily Agribusiness Bear 3X (COWS) and Bull 3X (COWL).

For me, any instrument where I can buy a bull/bear 3X ETF is a better choice than not having the ability.

Trev

[ernsttanaka]

One robot which IMO would have great value would be a VIX robot.

But I think to build a VIX robot you will completely rethink the internals works of such a robot.

And secondly I can think of a robot for the Treasuries.


Both are great indicators to stock market health and could be a scaffold to the DMF20 model

Ernst

[rosum@sympatico.ca]

I'd really like to see a SPY Robot. Are you just shelving it pending more research or do you consider it "off the table" for good?

Thanks,

Bob Atkinson

[asomani]

I'd really like to see a SPY Robot. Are you just shelving it pending more research or do you consider it "off the table" for good?

Thanks,

Bob Atkinson

I would also like to see a SPY robot.

I understand the performance may be worse than the IWM Robot. Possible reasons for this include the general outperformance of small caps than large caps in recent years and the beta of IWM vs SPY (I think the beta of IWM is about 1.18 or so).

[Pascal]

I would also like to see a SPY robot.

I understand the performance may be worse than the IWM Robot. Possible reasons for this include the general outperformance of small caps than large caps in recent years and the beta of IWM vs SPY (I think the beta of IWM is about 1.18 or so).

Here are two return tables (with stats included, but no pivots).
The LT signal is for both linked to the 20DMF.

8594

8595

SPY data is until May 20 (when I did that work). IWM is until yesterday.
Both start in August 2007

Pascal

[Adriano]

Commodities, Treasury, VXX, all good IMHO. If leveraged even better, but liquid. Personally not interested in SPY or QQQ.

[manucastle]

Some other ideas :-

Mid Caps.
Real Estate.
China.
Emerging Markets.
Semiconductors.

(Plenty of volatiilty here !).

All the above have 3X Long/Short ETF's available.

Trev

[Rembert]

While a currency or commodity based robot would be nice. I think Pascal has previously mentioned that it is more difficult (if not impossible) to build a robot on an ETF that doesn't have an underlying basket of stocks. Correct me if I'm wrong on this Pascal.

I'd like to see a robot with a low correlation to the existing robots. If correlation is very high then one might as well just increase position size in existing robots in my oppinion. GDX was a nice complement to IWM in that regard.

Here are some ETF's and their correlation coefficients relative to the existing robot ETF's.
The closer to zero the lower the correlation.

REMX (Market Vectors Rare Earth/Strategic Metals)
0.57 IWM
0.40 GDX
0.48 Average

TAN (Guggenheim Global Solar Energy)
0.43 IWM
0.10 GDX
0.26 Average

XLE (Select Sector SPDR Fund - Energy Select Sector)
0.67 IWM
0.54 GDX
0.60 Average

So based on these numbers I'd like to see a TAN robot.

The correlation info comes from : http://www.etfscreen.com/corrsym.php?s=TAN
You can change the ETF ticker in the url to see the correcation numbers relative to that ETF.

[Pascal]

While a currency or commodity based robot would be nice. I think Pascal has previously mentioned that it is more difficult (if not impossible) to build a robot on an ETF that doesn't have an underlying basket of stocks. Correct me if I'm wrong on this Pascal.

I'd like to see a robot with a low correlation to the existing robots. If correlation is very high then one might as well just increase position size in existing robots in my oppinion. GDX was a nice complement to IWM in that regard.

Here are some ETF's and their correlation coefficients relative to the existing robot ETF's.
The closer to zero the lower the correlation.

REMX (Market Vectors Rare Earth/Strategic Metals)
0.57 IWM
0.40 GDX
0.48 Average

TAN (Guggenheim Global Solar Energy)
0.43 IWM
0.10 GDX
0.26 Average

XLE (Select Sector SPDR Fund - Energy Select Sector)
0.67 IWM
0.54 GDX
0.60 Average

So based on these numbers I'd like to see a TAN robot.

The correlation info comes from : http://www.etfscreen.com/corrsym.php?s=TAN
You can change the ETF ticker in the url to see the correcation numbers relative to that ETF.

Yo are entirely right. I need to work on the underlying and see if the EV patterns can help us get an edge. So for example, I would not know how to work on a VXX or treasuries model. I'd need to start from scratch.

Also for TAN, how many people in our group are really trading TAN?
GDX/IWM are traded by many and have a low correlation.


Pascal

[Rembert]

>>Also for TAN, how many people in our group are really trading TAN?<<

Probably not many. I've never traded TAN myself. But I would start doing so if there'd be a profitable robot for it. I'm also not saying it should be TAN, but my preference if there is to be a new robot is for something that has a low correlation to the existing ETF's. I think it will be difficult to find an ETF that is currently traded by many members and has low correlation to IWM/GDX.

After all, diversification of low correlated but individually profitable systems is the only free lunch there is on wallstreet.

[Adriano]

Yo are entirely right. I need to work on the underlying and see if the EV patterns can help us get an edge. So for example, I would not know how to work on a VXX or treasuries model. I'd need to start from scratch.

OK, sorry for not understanding this.


Also for TAN, how many people in our group are really trading TAN?
GDX/IWM are traded by many and have a low correlation.


Pascal

Then in an ideal world I would like not correlated, with liquid 2x / 3x ETFs, popular. I would also care where a stop loss is going to be, not too wide.

[asomani]

Here are two return tables (with stats included, but no pivots).
The LT signal is for both linked to the 20DMF.

8594

8595

SPY data is until May 20 (when I did that work). IWM is until yesterday.
Both start in August 2007

Pascal

Thanks Pascal. If the return on each trade was adjusted for the difference in volatility between SPY and IWM (multiply the return of each SPY trade by 1.18 for example), I wonder what the comparison would look like.

Regardless, I can see why you may not see a SPY Robot as worth doing. If someone wants a lower beta version of IWM, they can simply reduce their position size.

Another idea: junk bonds (eg. JNK, HYG, etc.). They seem to trend quite well and could potentially offer the highest volatility-adjusted returns - and the correlation with equities is relatively low.

I would be interested to see a robot that takes trades in the area of commodities offering the most potential reward-to-risk - so, for example, it would trade XLE, GDX, etc. depending on which one is offering the highest potential reward-to-risk as determined by the robot's calculations. To me, this is preferable over simply a robot that trades one area of the commodities sector.

[manucastle]

For general US market sectors these are the correlations to IWM :-

XLF 0.74
XLV 0.70
XLB 0.84
XLY 0.82
XLK 0.84
XLE 0.67
XLI 0.85
XLP 0.57
XLU 0.54

So if we are looking for the least correlated sectors for a new Robot - Utilities, Consumer Staples and Energy may fit the bill at this present time.

Trev

[Riskslayer]

Here are two return tables (with stats included, but no pivots).
The LT signal is for both linked to the 20DMF.

8594

8595

SPY data is until May 20 (when I did that work). IWM is until yesterday.
Both start in August 2007

Pascal


Hi Pascal,

Given that SPY and IWM have different Multi-Time Frame Pivots; thus giving different entry levels that may get triggered on a particular day for one of the ETF's but not for the other ETF; e.g. I believe SPY is currently trading about 2% below its yearly pivot, while IWM is more like 4% below its yearly pivot - It seems possible that SPY could trigger a short sale more quickly in the short term than IWM (and perhaps more interestingly, IWM may not trigger a short at all and miss a trade that a SPY Robot would take). Moreover, an IWM and SPY Robot would on average miss a similar amount of trades that other might have taken and thus the average gains of each would reflect this. Also, I assume this effect would be more pronounced/relevant when the robot is trading in the mean reversion regime (i.e. affecting 40% of each's gain).

My point is... is that an account trading both a SPY Robot and IWM Robot would probably be able to get more trades in a given period than just one or the other; and given each's positive expectancy, this would lead to increased gains overall and probably most during the mean reversion trading periods. Perhaps even adding a QQQ Robot would help further with the goal of getting more trades in a given period.

I believe the pivot methods and money flow techniques both have their strongest edges when applied to large indexed-based ETF's vs single stock (or ETF's with few underlying stocks - maybe the GDX Robot refutes this point, but I'm not following that). If so, then we should keep to the new Robots focused on their areas of greatest strength.

My first reaction to the Q of which Robot next was to think about non-correlated ETF's - I think this would help in the trend following regimes. I think you would want to stick with the ETF's composed of large numbers of underlying stocks; among the non-correlated ETF's mentioned, I guess energy probably best fits that.. which is where you started this thread.. So, you are once again ahead of us :)

Thoughts?

Thanks,

Shawn

















I was wondering if a

[grems8544]

One of the powerful aspects of the IWM/GDX robot is that their correlations to the markets are relatively low, compared to other alternatives. This permits one robot to be long while the other is in cash, or short, as the markets dictate.

I think the consideration of any other robot has to start with correlation to the other existing robots. To me, and I know this is against the grain here, creation of a SPY robot will duplicate much of the in/out market behavior of the IWM robot, so I fail to see the point (completely ignoring that Pascal has already done this through May 2011 and the results underperformed the IWM robot).

To throw my 2 cents into the pool, I submit the following chart:

8596

This is a correlation matrix of the various indexes with IWM, GDX, and various ETFs from the Oil & Gas group. This is a correlation back over the past 2 years of data.

Here are the symbols, in case you are not familiar with Yahoo!:

^DJI: DJ 30 Industrials
^GSPC: S&P500
^RUT: Russell 2000
^IXIC: Nasdaq 100

Two equities are said to be correlated when they have a value of "1.0". There is no correlation when they have a value of "0.0", and there is inverse correlation when they have a value of "-1.0".

As you can see, over the long haul, IWM and GDX have a correlation value of 0.4 to each other, e.g., they are loosely correlated. This gives them the ability to have different behaviors, which is why we are long GDX at the present time but looking for a short entry into IWM.

You can read across the IWM row and see that IWM is tightly correlated with the general markets (0.87, 0.92, 1.00, 0.94). Contrasting, GDX is not (0.39, 0.41, 0.41, 0.35).

I think that this is a desireable behavior of a robot, and I think that if time and effort are going to be spent, we need to find another ETF that is not well correlated with IWM or GDX.

Enter XOP.

XOP is the Oil and Gas Exploration & Production ETF, and it has solid volume. It's correlation with IWM is 0.72 and with GDX only 0.56, so again, it's a loosely-correlated candidate. Further, it's correlation with the major markets is loosely correlated (0.67, 0.73, 0.73, 0.67).

Another attractive aspect of XOP is that it has two levered ETFs, DIG and DUG. The correlations with XOP are very, very close.

I've included OIL, another ETN (Note, not Fund), only as a reference. ETNs have tax consequences, so while it can provide further orthogonality, the practical nature of OIL in terms of taxes and subsequent K1's may preclude it from consideration.

Correlations change with time -- I can model this using a weighted methodology developed by the RiskMetrics Group. If we consider approximately on the last 100 days of data (or so), here's the correlation matrix:

8597

Note how there is a tighter correlation across the board with the various components, as well as with the major indices.

Taking this to the extreme, the correlation across the last 30 days of data (or so) produces the following:

8598

The implications are subtle -- sometimes market conditions rotate so that previously orthogonal ETFs are out of sync, as desired, and sometimes the markets rotate so that they become more in sync. We could find ourselves completely out of the market with a IWM, GDX, XOP robot triad, or we could find ourselves in the markets.

Again, my 3 cents (inflation)...

Regards,

pgd

[EB]

Another benefit of XOP is it is well diversified. XLE is 30% (approx) Exxon and Chevron alone, so it is likely to be more correlated with large cap indexes.

[Rembert]

XOP seems to be a good overall candidate indeed.
http://www.etfscreen.com/corrsym.php?s=xop

XOP (SPDR Oil & Gas Expl & Prod)
0.65 IWM
0.50 GDX
0.57 Average

[Pascal]

One of the powerful aspects of the IWM/GDX robot is that their correlations to the markets are relatively low, compared to other alternatives. This permits one robot to be long while the other is in cash, or short, as the markets dictate.

I think the consideration of any other robot has to start with correlation to the other existing robots. To me, and I know this is against the grain here, creation of a SPY robot will duplicate much of the in/out market behavior of the IWM robot, so I fail to see the point (completely ignoring that Pascal has already done this through May 2011 and the results underperformed the IWM robot).

To throw my 2 cents into the pool, I submit the following chart:

8596

This is a correlation matrix of the various indexes with IWM, GDX, and various ETFs from the Oil & Gas group. This is a correlation back over the past 2 years of data.

Here are the symbols, in case you are not familiar with Yahoo!:

^DJI: DJ 30 Industrials
^GSPC: S&P500
^RUT: Russell 2000
^IXIC: Nasdaq 100

Two equities are said to be correlated when they have a value of "1.0". There is no correlation when they have a value of "0.0", and there is inverse correlation when they have a value of "-1.0".

As you can see, over the long haul, IWM and GDX have a correlation value of 0.4 to each other, e.g., they are loosely correlated. This gives them the ability to have different behaviors, which is why we are long GDX at the present time but looking for a short entry into IWM.

You can read across the IWM row and see that IWM is tightly correlated with the general markets (0.87, 0.92, 1.00, 0.94). Contrasting, GDX is not (0.39, 0.41, 0.41, 0.35).

I think that this is a desireable behavior of a robot, and I think that if time and effort are going to be spent, we need to find another ETF that is not well correlated with IWM or GDX.

Enter XOP.

XOP is the Oil and Gas Exploration & Production ETF, and it has solid volume. It's correlation with IWM is 0.72 and with GDX only 0.56, so again, it's a loosely-correlated candidate. Further, it's correlation with the major markets is loosely correlated (0.67, 0.73, 0.73, 0.67).

Another attractive aspect of XOP is that it has two levered ETFs, DIG and DUG. The correlations with XOP are very, very close.

I've included OIL, another ETN (Note, not Fund), only as a reference. ETNs have tax consequences, so while it can provide further orthogonality, the practical nature of OIL in terms of taxes and subsequent K1's may preclude it from consideration.

Correlations change with time -- I can model this using a weighted methodology developed by the RiskMetrics Group. If we consider approximately on the last 100 days of data (or so), here's the correlation matrix:

8597

Note how there is a tighter correlation across the board with the various components, as well as with the major indices.

Taking this to the extreme, the correlation across the last 30 days of data (or so) produces the following:

8598

The implications are subtle -- sometimes market conditions rotate so that previously orthogonal ETFs are out of sync, as desired, and sometimes the markets rotate so that they become more in sync. We could find ourselves completely out of the market with a IWM, GDX, XOP robot triad, or we could find ourselves in the markets.

Again, my 3 cents (inflation)...

Regards,

pgd

Great analysis indeed. Thank you very much.
I was tempted to go with XLE, because of ERX/ERY (3X). However, XOP is maybe potentially less manipulated. I wonder if somebody has the list of tickers for XOP. I only found the list of stock names, which is attached.

8612


Pascal

[roberto.giusto]

I wonder if somebody has the list of tickers for XOP. I only found the list of stock names, which is attached.


Pascal

On the "spiders" website, they have a CSV file containing the tickers, you may download it at this address:

https://www.spdrs.com/site-content/csv/XOP_All_Holdings.csv?fund=XOP&docname=All%20Holdings&onyx_code1=1286&onyx_code2=1757

[Pascal]

On the "spiders" website, they have a CSV file containing the tickers, you may download it at this address:

https://www.spdrs.com/site-content/csv/XOP_All_Holdings.csv?fund=XOP&docname=All%20Holdings&onyx_code1=1286&onyx_code2=1757

Thanks!

Just did!

Pascal

[rosum@sympatico.ca]

Pascal ,

Thanks for the Robot comparison. The Robots' results seem proportionate to their underlyings. The amonaly is the 2011 performance on the SPY, the only period where either Robot didn't outperform. Was that what led you to to decide not to release it (yet anyway)?

Bob

[manucastle]

XOP seems a good choice. To be a little more detailed Natural Gas seems to have a good volatile future. Would UNG be a possibility as well ?

Here is some insite why :-

=====================
Breaking story.

Maran Gas, a Greek shipping entity, are about to place a huge order for 8 LNG tankers.

http://www.hellenicshippingnews.com/index.php?option=com_con...

Eight is huge for a couple of reasons
1. That's about a $1.6B order
2. It involves two shipyards
3. Through late May 2011, 16 vessels had been ordered YTD.

FWIW, Maran Gas had switched 3 VLCC orders into LNG tanker orders earlier this year, and its existing
operational fleet consists of 5 LNG tankers and 2 LPG tankers

http://boards.fool.com/breaking-story-maran-gas-a-greek-shipping-29339135.aspx
===================================

Trev

[Pascal]

XOP seems a good choice. To be a little more detailed Natural Gas seems to have a good volatile future. Would UNG be a possibility as well ?

Here is some insite why :-

=====================
Breaking story.

Maran Gas, a Greek shipping entity, are about to place a huge order for 8 LNG tankers.

http://www.hellenicshippingnews.com/index.php?option=com_con...

Eight is huge for a couple of reasons
1. That's about a $1.6B order
2. It involves two shipyards
3. Through late May 2011, 16 vessels had been ordered YTD.

FWIW, Maran Gas had switched 3 VLCC orders into LNG tanker orders earlier this year, and its existing
operational fleet consists of 5 LNG tankers and 2 LPG tankers

http://boards.fool.com/breaking-story-maran-gas-a-greek-shipping-29339135.aspx
===================================

Trev

Both UNG and USO have underperformed the underlynig commodities, because of the contral roll-over.

8616861786188619

NG went from $10 to $5, but UNG went from $100 to $12
Oil went from $120 to $100 while USO went from $100 to $40.

UNG and USO are good only for short trades.

Regarding the LNG tanker issues, they are probably also a consequence of cheap money.
I would not be surprised to see overbuilding at some point.. infrastructure can hardly match the demand cycle. It often overshoots it by a very wide margin.



Pascal

[andrew125]

What about OIH? This would be akin to GDX but for oil.

[grems8544]

What about OIH? This would be akin to GDX but for oil.

HOLDRs are incredibly efficient in cost -- OIH is $8/100 shares. This is the good news.

The bad news, for some, is that HOLDRS require a minimum 100-share lot to open, which could preclude their usage for folks wishing to employ strict money management techniques with a large-holding portfolio, e.g., no one positions occupies greater than 2-5% of a portfolio. @ $152/share, this implies a minimum position of $15.2K to open. This could be outside the size of what folks would want to commit in forward testing their own behavior of the robot. On the other hand, some folks only invest 2-7 positions per $100K, so this could fit well.

I think something with an odd-lot capability would be received better by subscribers, but of course, this is subjective.

Regards,

pgd

[senco]

Late to the thread, chiming in - and joining the choir: Low correlation to the current robots (I was glad to see GDX and not SPY as the second one), enough volume so as not to see high spread, and underlying stock tickers making it fit to the methodology.
Best if we have several robots where the equity curves are not highly correlated, and the best way to get there before the robots are completed is to look at low-correlated underlying ETFs.
Concurring with earlier posts, probably XOP (Oil & Gas) should be next. And if we could see more in the future ( :-) ) - XLV (Healthcare), XLP (Staples), and XHB (Builders) might be contenders.

I place lower importance on the availability of x2 and x3 ETFs for the specific index or industry group. With the way margin requirements for leveraged ETFs are calculated now seems to me there is no advantage to trading those vs. creating leverage by margin (except in the context of non marginable retirement account). Also I am not sure how the peculiarities created by the daily reset of leveraged ETFs will affect robot results.

Pascal, Billy - thanks for your great work, and keeping us all in the loop.

[Pascal]

XOP/XLE are correlated by 0.94

XLE and IWM are correlated by 0.66 XLE/GDX: 0.55
XOP/IWM: 0.66 XOP/GDX: 0.50

Since I have all the underlying for XLE, while I still would have to include many small stocks for XOP, since ERX/ERY are 100% correlated to XLE, while DIG/DUG are only 0.94 correlated to XOP,
and finally, since the volume is 4 times higher on XLE...

I believe that I will try to work out the XLE robot.

Pascal

[Billy]

XOP/XLE are correlated by 0.94

XLE and IWM are correlated by 0.66 XLE/GDX: 0.55
XOP/IWM: 0.66 XOP/GDX: 0.50

Since I have all the underlying for XLE, while I still would have to include many small stocks for XOP, since ERX/ERY are 100% correlated to XLE, while DIG/DUG are only 0.94 correlated to XOP,
and finally, since the volume is 4 times higher on XLE...

I believe that I will try to work out the XLE robot.

Pascal

Pascal,

As you already know, I am 100% in agreement with you for this choice. ERX and ERY are the most fascinating triple leveraged ETFs for highly powerful trend-following trades.
Billy

[Rembert]

I agree as well. There isn't that much difference between XOP and XLE so that should not be an issue.