The Portfolio Strategy (Strategy for brevity) is the most intuitive and closest to reality way to express an investment strategy with rules. This is where many of the Portfolio123 components converge, such as screening and ranking, to create a truly complete investment system, a.k.a. a "virtual portfolio manager".
The steps to create and launch Strategies is simple:
- Convert an investment idea into a rules-based Strategy
- Test the Strategy in the past to flag potential problems
- Launch the Strategy as a Portfolio
Converting an investment idea into rules
Together with a vast dictionary of data items and functions of both fundamental and technical nature, and a proper framework, Portfolio123 offers the most flexibility in allowing you to formulate a Strategy.
A Strategy is defined in 6 key sections:
- General - where you define things like benchmark, commission and management fee
- Rebalance - to set the position sizing and rebalance frequency
- Universe & Ranking - to define the starting universe and ranking system
- Buy and Sell rules - screen like rules that result in transactions
- Hedging and Stop Loss - optionally set up hedging or stop losses
- Restrictions - optionally set hard restrictions or go to cash periods
For more details on each section, please see the A-Z guide.
Testing a Strategy
Once your system is defined you can run historical simulations using our point in time engines. Together with an incredibly fast engine, advanced features like the Optimizer and Rolling Tests, and the best data in the business; the simulation features of Portfolio123 are truly unique.
However, these tools can also be controversial and misused. It's very easy to fall into a "data-mining" trap where your strategy is modified to produce ever-increasing "simulated" returns. There are simple tell-tale signs of data mining. For example, if you have a rule like "PE < 20" to filter for stocks with low PE, but then change it to "PE < 19.63" because you achieved a better-simulated return, then you are most likely data mining. To learn more about how to become a proficient strategy designer see our Library and Courses section.
Launching a Strategy
When you are done creating your Strategy, launching it with real money couldn't be simpler (or paper money if you prefer). All you have to do is start a "Live Strategy" that runs in the Research area. You then follow it with as many accounts as you want in your Manage Accounts.
Watch our recorded webinar about Strategy Design.