EdgeWare FastBreak Standard Version 6.5 - Manual (Page 48)

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Beta Buy Filter
This option will prevent purchase of a fund that has a beta greater than specified by the
filter. The index used to calculate beta is specified on the Funds/Index Tab. This option
has at least two uses. One, it can be used to build trading systems that have low volatility.
The second use is to build trading systems that perform better in volatile or down mar-
kets. This is because high beta funds often move to the top of the buy rankings on short
term rallies during down markets, but the rallies are false rallies that fail very quickly.
There are often funds that have a low beta that continue to trend upward in the down
market, but they are “overshadowed” by the high beta fund.
There are two parameters for this option. A maximum beta and a period over which the
correlation is calculated (recommended range is 50-100 days). If the beta is set to a very
low value, the strategy may be unable to find a fund suitable for purchase. If this is the
case, the money market fund will be purchased.
A recommended way to use this option is to make a baseline strategy run and look at the
beta value in the Summary output. Typical mutual fund systems can have betas of 2-3.
After making the baseline run, use a beta filter value of 1.5 to make a second run and
compare the results with the baseline run.
The user can choose whether to calculate a true beta using correlation or without correla-
tion. Beta is the ratio of the volatility of a fund divided by the volatility of an index (typi-
cally the S&P 500), multiplied by a correlation value between the fund and the index. If a
fund has a low correlation to the index it can have a low beta but be a very volatile fund.
An example would be a gold fund. Gold funds have a low or even negative market corre-
lation and yet are very volatile. Filtering on standard beta may not filter out a gold fund.
Using the non-correlated beta filter allows a user to mix a wide range of fund types in-
cluding those that may not have a high market correlation value, e.g., bonds, international
etc., in a trading family and have the ability to filter those with high volatility.
Min ROR Buy Filter
This option is closely related to Min ROR Sell Stop.