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From my little experience, I have found out that simple algorithms work great with as a good example:
https://www.quantconnect.com/forum/discussion/1013/moving-average-cross-in-python/p1Inspired by the algorithm mentioned above, I am now trying to figure out a good way to mitigate the risk of holding onto assets that are correlated with each other. I would like to select assets based on their -lack of- correlation with the assets already present in my portfolio. This leads to a theoretical problem since the algorithm is buying a positive trend EMA15 > EMA30. Assets that move in the same direction are correlated...
What are the good practices?
And as a result of having a portfolio with possible multiple assets. How do you optimize equity employed?
Derek Melchin
Hi PieterStam,
To implement this, we recommend emitting insights for each security in the universe that has EMA15 > EMA30. We just need to scale down the weight of each insight based on how correlated the security is with the other securities that passed the EMA condition. Consider reviewing the Uncorrelated Assets Research To Production Tutorial as it demonstrates an efficient way of calculating correlation.
Best,
Derek Melchin
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PieterStam
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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