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JimDean
Posted 5/18/2013 6:41 AM (#4749)
Subject: An OmniVest Portfolio Creation Journey



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OmniVest is certainly the biggest single thrust that Nirvana has made in many years, and it looks to me to be a WINNER for both Nirvana and their customers. It's been about nine months since it was first released in Alpha to a limited group of NClub members, and wow has it come a long way, fast. Released to the public in mid-March ... and just now, the Trade Processor has finally come out of Beta. We are well and truly on our way, with lots more to come I'm sure.

Nirvana has put together a number of training videos and is producing written documentation gradually, but I thought it might help to take y'all on a "journey of discovery" as to how the process of building a Portfolio of Strategies in OVest might go (there are MANY ways to do it of course), with a view to the "nuts and bolts" and the "whys and methods" rather than spending a lot of time discussing the features and buttons, etc.

So, this thread is dedicated to that process. As such, it's not set up for Replies but I'm creating a parallel OmniVest Questions and Comments thread here in the Money Mgmt & Risk Control Room, for potential owners to participate in. For a while now there have been a lot of posts about OVest in the Nirvana Club Section of this Forum ... and probably that will be where most of it stays until I hear that we have NON-NClub participants in this Forum that ARE OVest users ... at that point we will set up a Room for it. The comments-and-questions thread is here:
http://tradetight.org/forums/thread-view.asp?tid=915

Without further ado, let's begin the journey (and get ready ... it's a long and winding road)

Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey

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JimDean
Posted 5/18/2013 7:04 AM (#4751 - in reply to #4749)
Subject: An OmniVest Portfolio Creation Journey



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First of all ... if you haven't yet done so, visit the OmniVest.OmniTrader.com web page and see what Nirvana has to say about OmniVest. Watch the video and read everything you can ... then sign up for a free Demo account to try it out. This "Journey" will give you a way to start that process. I'm going to presume you've already done that, and dive right in to how to figure out what Strategies to use in your own custom Portfolio, starting from scratch.

OVest has its own unique and clever paradigm that just doesn't match how anyone else does stuff - and admittedly some of the terminology requires getting used to (although IMHO it's all pretty sensible once you get the hang of it).

Here are a few pieces of info that might help. Each Strat is "paired" with a focus list during development by some extensive inhouse work, to discover which FL's work best with each strategy. The FL's used differ between strat's - the last 2-3 characters of the Strat name indicate which FL is paired with it for OVest use. "SP", "NAS", "R1K" all should be fairly obvious. The middle character is L,S,B for long short both. The first chars designate the particular "strategy" (in the OmniTrader, Strategy-Builder sense). So, to answer your question re focus lists is that each OmniVest "strategy" is actually an OT strategy which has a dedicated direction and FL associated with it. When you select an OVest "strategy", you are selecting it WITH its attendant FL. There are often instances of the same strat-ID with different FL's and sometimes with different directions.

The list of strategies+direction+focuslist combo's is ALWAYS growing. Right now, if you are a Club member, there are 116 listed on the site - and only 11 of them are Club-restricted ARM-based strategies. But I'm confident that a month from now that list will be longer, and a year from now it will be a LOT longer.

When you work on the Strategies page, there are a collection of handy-dandy dropdown boxes to help you find your way through the long list of OV Strat+Dir+FL combo's ... each dropdown "filters" the full list so you see only those combo's that match your filters. It's a very clever system for decision-making. And of course there are statistics GA-lore ... both in columns and on a separate drilldown-window. I've provided a pretty huge snapshot below that was painstakingly copied and pasted and arranged from the info that's currently on the site ... afaik this is not "secret" ... but please be aware that the strategies that are circled are only avail to NClub members.


(Strategy Page Options Expanded.png)




Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey


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JimDean
Posted 5/18/2013 7:09 AM (#4752 - in reply to #4751)
Subject: An OmniVest Portfolio Creation Journey



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Here's my take on one way to use OmniVest to select a good combination of Strategies ...

FIRST STEP:

Go thru the strat's and their equity curves and stat's with the though in mind of a particular KIND of trading that you want to do ... all Longs, Aggressive, IRA, Bull-Market, etc might be adjectives to describe types of trading ... use the dropdown boxes to help you get a filtered start on this, and use the column-sorted statistics to "weed out" the filtered choices that don't fit the kind of performance you want, as an individual Strat+FL combo. Now you've got a list of good candidate strategies for that trading style, so you're done with the first step.

For example, you might filter for Long-Only Trending-Strat's for Equities. Now - this is important, and a COOL feature of OVest, CHECK the box "Normalize to % Invested". This sorta strange sounding option creates an EVEN PLAYING FIELD so that you can compare the various strat's apples to apples, insofar as how much money is allocated and used, on the average, by each one. Make sure all the allocation-percentages are cleared.

Then, Sort on CAR and check the boxes for the highest ones (6 with >=19%), and sort for AvgMDD and check the lowest ones (6 with <= 12% - but four of those already checked), and sort for %/Trd and pick the highest (4 with >9%, but two already checked), sort for MDD and pick the lowest (4 <=24% but all already checked), sort for %Wins and pick the highest (4 with >=69% but three already checked). Now click "show selected" so that all the others are hidden. NOTE: if you have arbitrary thresholds in mind that you are "set" on, you can type them in at the top of the column directly, like typing ">70" for %Wins, and clicking the "apply" button ... but I prefer to use the "figure it out" method rather than arbitrary thresholds).

Doing this with no other filters active creates a list of ELEVEN strat+fL combo's ... that's a great start, narrowed down from 116. Now, use other columns to filter OUT the ones you don't like amongst those - this, like the priorities used in the prior sort-selection, is quite subjective. You might be sorting on some of the same columns, but in reverse, to strip out choices that perform poorly on important categories ... sort by CAR, and throw out the two worst (~13% - they also had high MDD's) ... click show-selected twice to eliminate the unchecked ones ... then sort by %/Trd and drop out one that was only 3% ... click show-selected twice again ... then maybe (if you like to lower commissions), sort by Trds/Mo and toss out the 10.5 case that was a lot more than the others ... click show-selected twice again ... ALMOST DONE. Now, go through each column that matters to you, sorting back and forth on it quickly, and consider ALL the stat's for the "worst" symbol in that column ... if several are only marginal, then kill it off but do this sparingly since you've already culled most of them ... I knocked off one of them that had these stat's:
%Wins TPM .CAR. .MDD. AvgMDD %/Trd Av%Inv
70.9% 5.9 17.3% 30.0% 13.6 % 5.0 % 32.0 %

... and finally after the dust settled, I had FIVE strat's that fit those starting filter criteria, and seemed to be "all around best" re the statistics. At this point be sure to SAVE your collection with a new Portfolio name ... I like to abbreviate the main filters that I used as a starting point, so I called this one EqtyLngTrnd. The final-five are shown in the snapshot ...


(EqtyLngTrnd Portfolio (all equal).png)




Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey


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JimDean
Posted 5/18/2013 7:13 AM (#4753 - in reply to #4752)
Subject: An OmniVest Portfolio Creation Journey



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Now a different kind of fun begins - you can "massage" the combination of these strategies with ANY MIX of weighting (ie how much of your money goes proportionately into each strat - sorta) ... and the OVest window quickly generates a COOL CUSTOM EQUITY CURVE that uses that particular combo with the weightings you selected, and shows you how it would have performed over an extended period of time. Before you get started here make sure you've saved the choices in a uniquely-named Porfolio. Now go to your Account settings and fill in the MINIMUM information that applies to your account - leave the filtering till later. For example, I set 180% buying power limit (to leave myself a safety buffer), simulation start date of 1/1/2000 (to capture a full range of market types), and starting balances of 40,000 (to realistically limit trade sizes for something that I might work with). ALL the other filters are UNchecked (gives the highest return, usually) ... see the snapshot showing the settings and the two resulting equity curves (NOTE that Nirvana has many plans to add more filter options in the future, but this is a healthy list to work with for now).


(EqtyCrvs All vs No filters.png)




Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey


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JimDean
Posted 5/18/2013 7:15 AM (#4754 - in reply to #4753)
Subject: An OmniVest Portfolio Creation Journey



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About the "Allocation" percentage column. Think of this as a combination of "balancing" the strategies, and "pumping up" your overall investment exposure. The "balancing" comes from the RATIOS of the various allocations. The "pumping up" comes from the SUM of the various allocations. If you leave them all with the same ratios, but cut their magnitude in half, then expect to see a similar curve shape but with less resulting return. If you keep the sum the same, but change the ratios, then the shape of the curve will morph as a result. There are other factors to consider ... the main one is RUNNING OUT OF MONEY. That's why it's important to set the account with a reasonable starting balance. And, once you start turning on individual filters, it will either cap the size of trades or block some trades. It's all highly interactive and one of the reasons why OmniVest is so COOL. For now though, just think "ratios and sums, ratios and sums" when you work with the allocation table.

There are a LOT of ways to go about your adjustment of the allocations. One strictly "mathematical" approach is to use the "normalized" Avg%Inv column values as a starting point ... you can change the Allocation percentages to "compensate" for differences in the Avg%Inv values to make them all equal - presuming of course that you consider all the strat's equally useful :~) The snapshot shows the simple math you use to do that (MAKE SURE the "Normalize % Invested" box is checked to get the starting numbers, and the nice improvement that it produced in the final equity.


(Balancing Alloc by PctInv.png)




Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey


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JimDean
Posted 5/18/2013 7:17 AM (#4755 - in reply to #4754)
Subject: An OmniVest Portfolio Creation Journey



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OK ... going any further than this involves fiddling and guessing. I've highlighed numbers on the table that seem to be "good factors" ... each strategy has something going for it. NOTICE THE FOCUS-LISTS ... these are all "IG's" ... different targetted Industry Groups that apparently worked well with the T1 Strategy. (It's my guess that that Nirvana "tweaks" the parameters of the strategy to perform best for each Focus List that it's paired with). The interesting thing is that if you look at the little tiny Equity curves, the periods of good returns are DIFFERENT for the each Strat+List ... this shows an "industry group rotation" effect that is pretty nifty, and gives some assurance that the combination of these five will perform pretty well in all market types.

So, how to adjust things from here? We see that our balanced-allocation curve is weak in 2003 ... and if I read the teensy green equity curves correctly, the T1-L-IG07 strat did well during that period (see the yellow highlighted area). Also, our balanced-alloc curve is sort of weak in 2009 ... and the T1-L-IG13 curve did pretty well there. So, let's try adjusting the allocations for those two a bit higher. For grins, we will do it in such a way that the SUMS stay the same, but the RATIOS change. Let's decide to increase those two each by 50% relative to what they have allocated now. That takes 07's 200% to 300%, and takes 13's 140% to 210%. BUT, we want to keep the SUMS the same. So, our starting sum is 95+140+115+200+70 = 620, and the revised sum is 95+210+115+300+70 = 790. Therefore we apply an adjustment of 620/790= 78.5% to all five inputs, resulting in: IG17:95=>75, IG13:210=>165, IG18:115=>90, IG07:300=>235, IG06:70=>55 ... double check the sum: 75+165+90+235+55= 620 (whew!) the same. When we plug in the new ratios, we see (hurrah!) that our final equity is up again, now over a million dollars, starting from 40,000.


(ReBalancing from Little Green EqtyCrvs.png)




Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey


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JimDean
Posted 5/18/2013 7:31 AM (#4756 - in reply to #4755)
Subject: An OmniVest Portfolio Creation Journey



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OK time to get real now. Look at the Account Setting filters again. Each of us has personal biases about such things. I'm personally concerned about liquidity, and diversification. There are two filters that impact liquidity ... the Max Trade Size as % of Avg Daily Volume ... I think that 0.1% is an "OK" limit ... my trade should not be more than 1/1000 of the total volume for the day. The other liquidity filter is the Min Avg Daily Volume ... I think that requiring a symbol to have an AVERAGE of 100,000 shares per day is an "OK" limit, considering that I am not expecting to trade really big positions with my account. Some people would pick a lower number than 0.1% and a higher number than 100k, but I'd rather not limit things too much. Re diversification ... again, OmniVest offers two inputs ... the max Strategies trading the same symbol (we have five strat's) - since they are all using different Focus lists this probably doesn't matter but I set it at 2 just for grins. The other diversification-related filter is Max Exposure Pct per symbol ... that is, how much of your current buying power can be socked away in one position ... I'll choose a "typical" setting of 10%. I'll leave the other filters turned off and see what happens.

By the way ... if you make the changes to Account Settings BEFORE you re-SAVE your portfolio (with the new allocations in it), then when you come back to the strategy view, you'll need to re-ENTER the allocations ... this time, SAVE it! (guess why I'm mentioning this)

OK, when we recalc the curve, we get a shock ... our $1m final equity just got cut in half by our "very reasonable" limitations. When THAT big a change occurs, you should re-visit your last changes and figure out what caused the problem. I previously modified four things in Account Settings. So, going back, I tried them out ONE at a time, and found out that the two "really bad guys" were the Liquidity limits. Apparently, this portfolio likes to trade symbols that have relatively low daily volumes, and in order to get back to the $1m range, we need to turn off both filters. What's that mean for our trading? Extra Slippage. Also, we need to be pragmatically conscious of the fact that there may not be enough volume to actually provide fills for some of the trades that OmniVest is simulating. I'm hoping that Nirvana will improve OVest in the future, to help take slippage and fill limitations into account, but for now, we drive on! In the process of fiddling with the filters I discovered something VERY interesting ... if I turn on ONLY ONE filter (Max Exposure/Symbol = 10%), my final return JUMPS UP another $200K. That tells me that without that limit, I was not adequately diversified and got "hit".


(EqtyCrvs fiddling with filters.png)




Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey


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JimDean
Posted 5/18/2013 7:37 AM (#4757 - in reply to #4756)
Subject: An OmniVest Portfolio Creation Journey



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I hope that this journey has been helpful and interesting for you! Let me just add that I did not "fiddle" with my decision making beforehand ... this is a record of what happened naturally along the way, with a journal of my logic at each step. It's certainly not the ONLY way to create a portfolio ... nor is it necessarily the BEST way, but it does illustrate how things in OVest work. It's a great tool!

... I'll continue the journey if there seems to be a need in some other areas, but for now, kick back and sit a spell ...

Thread moved by JimDean on 8/4/2014 8:47 AM from Markets & Methods > OmniVest, Money Mgmt & Risk Control > An OmniVest Portfolio Creation Journey

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