EdgeWare FastBreak Pro Version 6.2 - Manual (Page 37)

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database can be used. Note: If using the Minimize Beta option, the Beta Buy Filter
should also be used on the Buy Filter screen. For example, if a user wants a strategy
that has a maximum beta of 1.5, then a range of 1.0 to 2.0 could be used in the Beta
Buy Filter range. The reason that a range can be used rather than just forcing a Beta
buy filter of 1.5 is that if the strategy holds many funds, individual funds may have beta
values greater than 1.5, but the combination of funds may produce a final strategy
equity curve that meets the desired maximum beta.
The reason a Beta/Corr Period is used rather than just measuring beta (or correlation)
over the entire historical equity curve is because beta can change dramatically over short
versus long time periods. To measure beta over a multi month or year period of time can
be very misleading. For example, a strategy may have a very modest beta for the entire
strategy history but have short periods of time when the beta is quite large. If a user
wants a conservative strategy, i.e., low beta, it is only reasonable that the strategy should
always try to meet that strategy goal during any time period.
The same is true of
correlation. The recommended minimum period to calculate beta and correlation is 50
market days.
In addition to building low beta investment strategies, this option has a second use. We
have found that, during times of extreme market volatility, high beta funds are very
subject to whipsaw, i.e., after rapid price gain there is rapid price loss. By applying a beta
limit on funds purchased, less volatile funds will be purchased that are continuing to trend
upward in a very steady manner.
The maximum beta can be measured in the traditional manner, i.e., with correlation, or a
non-correlated value.
See the Beta Filter option discussed earlier for additional
discussion. Why would a user want to use a non correlated beta? One reason may be if
there is a mixture of funds in the trading family that have low correlation to the user
defined index.
For example, the user may mix US equity funds with bonds and
international funds. The bond and equity funds may have a low correlation to the S&P
500 index but be extremely volatile. Removing the correlation from the beta calculation
will compare funds on a daily standard deviation basis.
If you want to save the results from all strategies evaluated by FastBreak Pro into a file,
then check the following option:
Checking this option brings up a standard file name selection menu. The data from each
test case is stored in a text file that can be opened in a word processor or spreadsheet for
additional analysis. Here is an example of the stored data:
ADJ % ANN % UPI MDD S/Y Gen# Rob Strategy Beta Corr Alpha CAHPB LPKDESBRXT CB LE OEPRCBXT BE
7.66 19.95 1.4 28.73 32 1 1 MAM 1.55 0.94 15.8 NNYNY NNNNNNNNNL NN NN YNNYNNNL NN
6.74 21.67 3 17.21 64 1 0.9 MAM 1.69 0.95 18 NNNNY NYYNYNYNNN NN NN YYNYNNNN NN
3.45 19.03 2.1 16.83 110 1 0.9 MAM 1.1 0.91 16.7 NNNNY YYNYYYNYNL NN NN YNYNNNNL NN
7.41 19.91 3.1 15.38 58 1 1 MAM 1.53 0.9 17 NNNNY NYYYYYYNNN NN NN YNNYNNNY NN