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 ULTIMATE PRICE MOMENTUM SERIES STUDY - PART 1
 

   What is the Ultimate Price Momentum Series?
   The Ultimate Price Momentum Series is a family of Canadian stock portfolios that derives from the former Price Momentum Weekly portfolio. On top of the orders generated by the Price Momentum Weekly portfolio, the Ultimate Price Momentum portfolios add a delay filter of various lengths.
   5 different portfolios are featured in this family, the Ultimate Price Momentum v1 adds a 1-week delay filter, the Ultimate Price Momentum v2 adds a 2-week delay filter and so on until the Ultimate Price Momentum v5 that adds a 5-week delay filter.
   The filter works as follow: if a stock is bought by the Price Momentum Weekly for less than the value of the filter delay of one of the Ultimate Price Momentum portfolio, then this buy order is ignored. It is only when the stock has been hold for more than the filter delay that the buy order is issued in the corresponding Ultimate Price Momentum portfolio (and only if the stock would not be sold the same day by the Price Momentum Weekly portfolio). Once a stock is hold by one of the Ultimate Price Momentum portfolio, the sell order is issued the same day as the sell order dealing with the same stock in the Price momentum Weekly portfolio.

 

   Why the Ultimate Price Momentum Series?
   Following our observations and your feedback, we thought that we could find a way to remove some of the poor trades that the Price Momentum Weekly generates. It appears that very few of the short term trades generated by our stock picking strategy were good and that it would be more profitable to exclude them. Hence, the idea of adding a delay filter to the raw orders.
   But adding a delay filter also means changing the returns of our good trades (the longer term ones that will stay after the filtering). Then, to sense how good or bad this change of strategy would be and to help you to choose which portfolio from this family best suits your investment philosophy, this study has been done.

 

   How has the study been run?
   Based on the fact that the new Ultimate Price Momentum portfolios are directly derived form the orders of the former Price Momentum Weekly portfolio, it has been possible to filter those historical orders in order to back-test our Ultimate portfolios. Therefore, the historical performances of the new portfolios have been deducted from these new sets of orders.

 

   What are the results of the study?
   The study deals with four topics: the performances improvement, the lower volume of orders, the reduced number of holdings and the increased volatility of the Ultimate Price Momentum portfolios.
   Note that the study has been done with the data in date of the March 17, 2005.

  • Improved performances

   This was the primary objective of the new portfolio family. Removing the short term trades that were for most of them non-profitable should help to improve the return of our portfolios. But, as it also affects the return of the good trades, it was important to back-test the new portfolios carefully.
   The following graphics show the return of the portfolios on two different time frames:


Ultimate Series Versus Price Momentum Weekly Year To Date Returns


Ultimate Series Versus Price Momentum Weekly Since Inception Returns


   And the following table gives another view of the improved performances:

 Portfolio Name
Performance Since
Jan-01-2005
Performance Since
Oct-12-2004
3 Best Trades
3 Worst Trades
-1.2%
50.3%
272.38% (CUX)
107.03% (WTL)
86.72% (AGA)
-28.89% (HLB)
-21.77% (ICS)
-20.71% (ZIC)
11.5%
73.84%
215.04% (CUX)
79.17% (AGA)
68.25% (WTL)
-23.62% (ICS)
-21.64% (ZIC)
-21.58% (FT)
5.1%
58.71%
128.21% (CUX)
70.97% (WTL)
65.02% (AGA)
-23.69% (ZIC)
-11.92% (GW)
-9.96% (KGI)
11.86%
84.9%
138.93% (CUX)
75.5% (WTL)
57.59% (AGA)
-11.92% (GW)
-9.6% (HLB)
-0.74% (MIG)
14.05%
99.29%
147.22% (CUX)
76.67% (WTL)
35.71% (HSG)
-8.05% (HLB)
-2.99% (GW)
2.29% (MIG)
13.05%
105.36%
159.48% (CUX)
63.08% (WTL)
43.06% (AGA)
-8.57% (HLB)
-1.47% (MIG)
4.56% (RRZ)

   As it was expected, it can be noticed that the delay filter has improved the overall return of the portfolios by removing a lot of the short term bad trades. As a consequence, any of the Ultimate Price Momentum portfolios performs better than the former Price Momentum Weekly portfolio, and this, on any time frame we choose.
   At the same time, we can also see that the best trades have also been affected a bit by this buying delay, but not enough to offset the increase in the quality of the trades.
   Regarding the relative performance of the different Ultimate Price Momentum portfolios, it is too early to draw a conclusion on which one of them is the best performer. It seems that the longer the delay, the better the performance, but it may be a synchronization issue. Furthermore, the 2-week delayed portfolio has lost some ground in the last month, but this does not mean that it is worse than the other portfolios, it is only due to the fact that one of its stocks has sunk while the portfolio was holding only two values.

   
To be continued in the second part of this study where you learn how this delay filtering strategy, on top of improving the performances of the portfolios, also lowers the number of trades to execute and the number of stocks to hold in those portfolios.

 
 
 
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