Add Auto-Rebalance Portfolio Monthly??? (Read More...)

Hi, I’m doing some MT4 backtests with long term backtests and there is an Important feature I miss in QAnalyzer: Auto rebalance portfolio.

Each strategy grows in a different way and after few time, the portfolio is very different if we don’t update each underlying weight

We would need at least each year/Quarterly but much better if we could set "Auto Rebalance Portfolio" monthly. (see attached files)

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  • Votes +9
  • Project QuantAnalyzer
  • Type Feature
  • Status Waiting for information
  • Priority Normal
  • Assignee Mark Fric

History

TM
#1

tmatejka

03.12.2018 23:05

Task created

o
#2

Enric

03.12.2018 23:33
Voted for this task.
i
#3

irod

04.12.2018 16:03
Voted for this task.
i
#4

irod

04.12.2018 16:15

Attachment Rebalancing Example.png added

I think it is an essential feature for any serious portfolio.


See some examples of many other Excellent tools (like Portfolio Visualizer). See Attached files.

There you can see how important is Rebalancing a portfolio. More examples:


1.- https://www.investopedia.com/investing/rebalance-your-portfolio-stay-on-track/

2.- https://www.investopedia.com/articles/stocks/11/rebalancing-strategies.asp


Please, I would be very glad if you could add this feature is soon as possible.


Thank you!!

m
#5

mabi

06.12.2018 04:45
Voted for this task.
p
#6

partizanas

06.12.2018 14:54
Voted for this task.
i
#7

irod

06.12.2018 17:49

What Is Rebalancing?

Rebalancing is the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state. In addition, if an investor's investment strategy or tolerance for risk has changed, she can use rebalancing to readjust the weightings of each security or asset class in the portfolio to fulfill a newly devised asset allocation.

Blown out of Proportion?

The asset mix originally created by an investor inevitably changes as a result of differing returns among various securities and asset classes. As a result, the percentage that you've allocated to different asset classes will change. This change may increase or decrease the risk of your portfolio, so let's compare a rebalanced portfolio to one in which changes were ignored, and then we'll look at the potential consequences of neglected allocations in a portfolio.


Here's a simple example. Bob has $100,000 to invest. He decides to invest 50% in a bond fund, 10% in a Treasury fund, and 40% in an equity fund.


140503_1-5c0592c5c9e77c00016f2224


At the end of the year, Bob finds that the equity portion of his portfolio has dramatically outperformed the bond and Treasury portions. This has caused a change in his allocation of assets, increasing the percentage that he has in the equity fund while decreasing the amount invested in the Treasury and bond funds.

140503_2-5c0592cb46e0fb00015b2ec3

More specifically, the above chart shows that Bob's $40,000 investment in the equity fund has grown to $55,000—an increase of 37%. Conversely, the bond fund suffered, realizing a loss of 5%, but the Treasury fund realized a modest increase of 4%.

The overall return on Bob's portfolio was 12.9%, but now, there's more weight on equities than on bonds. Bob might be willing to leave the asset mix as it is for the time being, but leaving it for too long could result in an overweighting in the equity fund, which is riskier than the bond and Treasury fund.

The Consequences Imbalance


A popular belief among many investors is that if an investment has performed well over the last year, it should perform well over the next year. Unfortunately, past performance is not always an indication of future performance—a fact many mutual funds disclose. Many investors, however, remain heavily invested in last year's "winning" fund and may drop their portfolio weighting in last year's "losing" fixed-income fund. But remember, equities are more volatile than fixed-income securities, so last year's large gains may translate into losses over the next year.


Let's continue with Bob's portfolio and compare the values of his rebalanced portfolio with the portfolio left unchanged.

140503_3-5c0592c946e0fb000131b828

At the end of the second year, the equity fund performs poorly, losing 7%. At the same time, the bond fund performs well, appreciating 15%, and Treasuries remain relatively stable, with a 2% increase. If Bob had rebalanced his portfolio the previous year, his total portfolio value would be $118,500—an increase of 5%.

But if Bob had left his portfolio alone with the skewed weightings, his total portfolio value would be $116,858—an increase of only 3.5%. In this case, rebalancing would be the optimal strategy.

140503_4-5c0592c7c9e77c0001d6a43e

However, if the stock market rallies again throughout the second year, the equity fund would appreciate more, and the ignored portfolio may realize a greater appreciation in value than the bond fund. Just as with many hedging strategies, the upside potential may be limited, but by rebalancing, you are nevertheless adhering to your risk-return tolerance level.

Risk-loving investors are able to tolerate the gains and losses associated with a heavy weighting in an equity fund, and risk-averse investors, who choose the safety offered in Treasury and fixed-income funds, are willing to accept limited upside potential in exchange for greater investment security.

How to Rebalance Your Portfolio


The optimal frequency of portfolio rebalancing depends on your transaction costs, personal preferences, and tax considerations—including what type of account you are selling from and whether your capital gains or losses will be taxed at a short-term versus long-term rate. Usually, about once a year is sufficient; however, if some assets in your portfolio haven't experienced a large appreciation within the year, longer time periods may also be appropriate.


Additionally, changes in an investor's lifestyle may warrant changes to his or her asset-allocation strategy. Whatever your preference, the following guidelines are the basic steps for rebalancing your portfolio:


  1. Record — If you have recently decided on an asset-allocation strategy that seems perfect for you and purchased the appropriate securities in each asset class, keep a record of the total cost of each security at that time, as well as the total cost of your portfolio. These numbers will provide you with historical data of your portfolio, so at a future date you can compare them with current values.
  2. Compare — On a chosen future date, review the current value of your portfolio and of each asset class. Calculate the weightings of each fund in your portfolio by dividing the current value of each asset class by the total current portfolio value. Compare this figure to the original weightings. Are there any significant changes? If not—and if you have no need to liquidate your portfolio in the short term—it may be better to remain passive.

  3. Adjust — If you find that changes in your asset class weightings have distorted the portfolio's exposure to risk, take the current total value of your portfolio and multiply it by each of the (percentage) weightings originally assigned to each asset class. The figures you calculate will be the amounts that should be invested in each asset class in order to maintain your original asset allocation.

Of course, you may want to sell securities from asset classes whose weights are too high, and purchase additional securities in asset classes whose weights have declined. However, when selling assets to rebalance your portfolio, take a moment to consider the tax implications of readjusting your portfolio. In some cases, it might be more beneficial simply not to contribute any new funds to the asset class that is overweighted while continuing to contribute to other asset classes that are underweighted. Your portfolio will rebalance over time without you incurring capital gains taxes.

The Bottom Line

Rebalancing your portfolio will help you maintain your original asset-allocation strategy and allow you to implement any changes you make to your investing style. Essentially, rebalancing will help you stick to your investing plan regardless of what the market does. 

i
#8

irod

07.12.2018 17:58

More information about why portfolios must be rebalanced

Illustration shows that without rebalancing a portfolio made up of 53% in stocks in 2008 could become 71% in stocks by 2016 thereby becoming a more aggressive stock allocation than originally intended.
Merrill Lynch Global Wealth Management — July 20172

The illustration is hypothetical and does not reflect specific strategies we may have developed for actual clients. It is not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality. Source: https://www.merrilledge.com/article/how-and-when-rebalance-your-portfolio


i
#9

irod

09.12.2018 17:55

Subject changed from Auto rebalance portfolio to IMPORTANT - Auto Rebalance Portfolio (Please Vote to Set Priority to High!!!)

Attachment Rebalancing Example 2.png added

Subject changed from IMPORTANT - Auto Rebalance Portfolio (Please Vote to Set Priority to High!!!) to URGENT - Auto Rebalance Portfolio (Read More...)

Subject changed from URGENT - Auto Rebalance Portfolio (Read More...) to URGENT - Auto Rebalance Portfolio (Read More...)

Subject changed from URGENT - Auto Rebalance Portfolio (Read More...) to -> URGENT - Auto Rebalance Portfolio (Read More...)

Description changed:

Hi, I’m doing some MT4 backtests with long term backtests and there is an Important feature I miss in QAnalyzer: Auto rebalance portfolio.

Each strategy grows in a different way and after few time, the portfolio is very different if we don’t update each underlying weight

We would need at least each year/Quarterly but much better if we could set "Auto Rebalance Portfolio" monthly. (see attached files)

Subject changed from -> URGENT - Auto Rebalance Portfolio (Read More...) to Auto Rebalance Portfolio Monthly??? (Read More...)

If we do not have the chance to rebalance the portfolio, we are missing to Essential Information for any Portfolio Analysis.


See Comments above...


70ffc579788e001.png

N
#10

nathan

12.12.2018 14:18
Voted for this task.
i
#11

irod

13.12.2018 11:20

Subject changed from Auto Rebalance Portfolio Monthly??? (Read More...) to Add Auto-Rebalance Portfolio Monthly??? (Read More...)

i
#12

irod

15.12.2018 19:06
Right! I think is an essential feature for any serious Portfolio Management Software.


m
#13

mabi

17.12.2018 21:52
One way to do this as I have posted before is to have QA to split up all strategies in different contract sizes and then run QA portfolio builder again on it so you can pick the one that looks best. In all cases I have seen the portfolio is unbalanced from the get go and thats why You need to re- balance it.
i
#14

irod

18.12.2018 13:18
Hi Mabi, Please could you explain it better?


If we have for example 100 simple strategies in a long term, when we build a portfolio with them, we would need to rebalance them several times during the all portfolio history. In case we repeat each strategy each year (starting again with the initial balance and weight for each strategy, like rebalancing) the problem is that a lot of trades are forced to be closed at the end of each period and the final result is not valid.

g
#15

geektrader

19.12.2018 03:44
Voted for this task.
m
#16

mabi

19.12.2018 23:14
Well tested a year ago to contract size all strategies and have QA to build a more balanced portfolio building to see if I could lower the stagnation and I could  almost remove it completely. I saved 10 new versions of each strategy with a different contract size. . 0.1, 0.2, 0.3, 0.4... This was a lot of work to do manually so I gave it  up. When trading strategies live I have been resizing strategies because their impact on EQ curve have been to large and by doing this I have smoothed it considerably ( I could have 30 % drawdown from 3 GBPUSD strategies during a month that wiped out 6 months of profits from 10 other strategies). Mostly this was because there was a bug in Correlation calculations in QA and this did not work at all. Now it works better but could still be improved.
i
#17

irod

20.12.2018 00:54
Thank you for your explanation Mabi. 

As you can see, Auto Rebalance porfolio is essential.

r
#18

RNG

25.12.2018 15:06
Voted for this task.
i
#19

irod

27.12.2018 00:12
Thank you for your vote RNG!
HH
#20

Hans

07.01.2019 13:50
Voted for this task.
TT
#21

Tamas

14.01.2019 11:57

Assignee changed from Mark Fric to Mark Fric

Priority changed from Low to Normal

MF
#22

Mark Fric

14.01.2019 12:30

Status changed from New to Waiting for information

rebalancing portfolio is a kind of backtest, not analysis of trading history, I'm not sure it should be in Quant Analyzer.


This functionality seems to be more suited for StrategyQuant.

i
#23

irod

15.01.2019 00:41

Hi Mark,


Sorry for inconvenience, This week I'm out of the office but We are preparing an email for you.


Well, It is clear that Quant Analyzer analyzes the behavior of a portfolio with several underlying assets over time and shows statistics based on that strategy. The error we see is when that portfolio is distorted over time because it can not adjust the weight of the portfolio components since they evolve differently and individually. 


As a portfolio manager of investment funds, we are clear that this tool is essential to understand if a strategy is valid for incorporating it into an underlying portfolio, but we must facilitate the work by balancing and weighing all the underlying assets in the proportion that we consider optimal, and that weight must be maintained over time. Otherwise, none of the statistics will be valid when they become a portfolio completely different from the one originally desired.


In fact Quant Analyzer is a perfect software for any professional (and of course also amateurs) who wants to know all the statistics of a portfolio through the tools that you offer and the incorporation some others more. It is very difficult to find competitive software in the market and you are getting it.


Anyway, I'll write you a private email when I return to the office. For me it will be a pleasure to discuss any point to improve and resolve any doubt. Count on us for what you need.


Best Regards!

KP
#24

CooleRnax

29.10.2019 17:13
Voted for this task.

Votes: +9

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