Friday, 25 November 2011

Another research project - the Bund

Thanksgiving Day, so no trading in one of our main markets, but enough vol in the others to make it just about worthwhile to trade. With the latest tiny tweak to our systems, the actual management of trades has really improved, so there isn't the rather frantic, closely-spaced activity that used to characterise our trading throughout the day. This suggests that we have time in our daily routine to add another major market sector - usually I look at Crude Oil for this, but this time I have decided to look at the German Bund again, if only because it is in the news today following a failure of a 10 year auction this week.

And the initial prognosis is very good. True I have only processed about a dozen days of trades, but high Sharpe ratio systems don't need much data. By Sunday I'll have about 50 days which should be enough. Jerome is already talking of adding the Bund from next Monday! Average daily profit is 27 pts but volatility is low at 52 pts for a Sharpe ratio of 8.3. Adding this to our current portfolio and setting a position size via the relative Vol (rather than correlation at this stage), and daily profit is up 50% while daily vol at the portfolio level is only up 10%. Now that is a major positive!

The Bund Dec 2011 contract - could this produce another huge jump in our Sharpe Ratio?

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