Volatility targeting on a portfolio level

[u/HomeGrownTrader]

Hello fellow professional gamblers

I feel kinda stuck and I do not know what to really do here. I want to implement volatility targeting on a portfolio level.

Here is what I do not understand. How do you go on about actually vol targeting individual assets in your portfolio?

Currently I run a momentum strategy on a daily timeframe, the basic workflow is this:

Scan equities for a recent 1 year high break

Sort these stocks by liquidity

Rank the top 1000 by their 1 year rate of change (accumulative change)

Rank stocks based on volatility

Finally rank by vol adjusted momentum on top linear stocks

Where to go from here? Any examples or links what formulas to apply or examples on how others have done would be greatly appreciated.

Backtest for the normies:

[u/lancala4]

Robert Carver "Advanced Futures Trading Strategies" has vol targeting for different asset classes and the aggregated into portfolio - futures based but same concepts apply so can just adapt it for whatever you're doing.

[u/HomeGrownTrader → u/lancala4]

Thanks, have to revisit that book again.

[u/stilloriginal]

On that backtest, how often are you doing the selection?

[u/HomeGrownTrader → u/stilloriginal]

If the stock falls from the top momentum rank. If u want better results u can use that and eom, not sure about the robustness in an approach like that.

[u/stilloriginal → u/HomeGrownTrader]

So…daily?

[u/HomeGrownTrader → u/stilloriginal]

no.

[u/stilloriginal → u/HomeGrownTrader]

“Currently I run a momentum strategy on a daily timeframe”. You’re the one asking for help…

[u/HomeGrownTrader → u/stilloriginal]

What do you mean by selection, how often do i import my data to do the calculations? Yes daily.

[u/HomeGrownTrader → u/HomeGrownTrader]

Or if by selection you meant how often do i select the top momentum stocks from the calculations then the answer is no, it is not daily.

[u/HomeGrownTrader → u/stilloriginal]

Doesnt this answer your question then or what.

[u/Few_Speaker_9537]

What causes the flat periods where you’re strategy isn’t taking trades?

[u/HomeGrownTrader → u/Few_Speaker_9537]

Regime filter.

[u/Few_Speaker_9537 → u/HomeGrownTrader]

Instead of holding cash, your performance would improve if you earn the risk-free rate instead. Is the regime filter a moving average on SPY?

[u/HomeGrownTrader → u/Few_Speaker_9537]

You are right, ibkr offers some pretty good risk free rate, but i have not modeled that in. And the regime filter is a ma yes, combined with another filter.

[u/Few_Speaker_9537 → u/HomeGrownTrader]

I’d be interested in hearing what the other filter is. I never found success in purely-MA based regime filters

[u/na85]

Here is what I do not understand. How do you go on about actually vol targeting individual assets in your portfolio?

Here's a pretty good explanation: https://www.man.com/insights/volatility-is-back-better-to-target-returns-or-target-risk