New expected returns

[Chris Kuntarich]

Hey everyone,

At the meeting we decided that we want to include IAU in our
portfolio. We decided that we would create expected returns for all
of our holdings plus gold for the next two weeks. Please adjust the
holdings that you individually monitor to the best of your knowledge,
so we can utilize the risk allocation program to the best of its
abilities.

Expected returns for the next two weeks (Commodity division):
IXC: 1.0-1.6% Favoring the lower end for the upcoming week
GSC: 1.4%
IAU: 2.5%

Please get these numbers in as soon as possible so we don't miss
action, or have some expectations made on macro data that was not
available for the earlier expectations.

-Chris

[Nayab Khan]

This sounds great. I'm excited that we're doing it. Sorry I couldn't
make the meeting - I had a review session for a class in which I have
a midterm this week.

Quick thing - so, are we going to rebalance the portfolio for a 2 week
time horizon or for a 1 week time horizon?

Thanks!

[Phil Matta]

These numbers don't help without corresponding standard deviations for
the etfs and without the same for the ivv. What numbers am I using for
our other holdings?

Phil
Sent from my Windows Phone
From: Nayab Khan
Sent: 2/19/2012 6:58 PM
To: Sanguine Strategy
Subject: Re: New expected returns

[Chris Kuntarich]

So we can't use the same std. dev numbers from the last time we did
this? Were you looking at historical pricing data to find the pricing
std. dev, and if so over what kind of timeline?

-Chris

[Phil Matta]

To be honest I'm a little confused.  I think you said that these estimates are for a  two week time horizon, right?  The time horizons we have right now for the allocation program are three week.  So essentially are expected returns are a little higher and are STD's are a little higher in our current estimates for our holdings than they would be for a two week time horizon.  We could just cut these estimates by a 1/3rd if we wanted to.  Hopefully someone will weigh in on this.  

In terms of calculating or estimating STD numbers:  

You can do STD a number of ways but maybe the easiest is going to ishares and scrolling to the bottom of the page.  They list the some details about the ETF's like its beta value and STD.  I'm pretty sure this is 52 week data (iShares is down right now so I can't look for myself to confirm) so it would have to be adjusted for our 2 week time horizon.  Keep in mind there is a square root in the calculation of STD so a linear decomposition of that STD won't be accurate (i.e. dividing that number by 52 won't necessarily give us a good estimate of STD for 1 week).  Instead maybe just comparing relative to the IVV is a better technique.  So I know the IVV has a STD around 18 or 19% so if IAU is somewhere like 23%  than whatever STD we expect for the IVV is probably going to be lower than for IAU.

This is why I think it is important to evaluate the IVV and base our numbers partly off the IVV.  If we have good estimates for the IVV than we can get good estimates for everything else.  So if we expect the IVV to have a STD of 2% over the next two weeks, than we can guess that the IAU will have a slightly higher STD maybe 2.1-2.5%.  And if GSC has a 52 week STD of 28% than over a 2 week time horizon, if we guess the IVV will have a STD of 2%, then GSC is more likely to be in the 2.3-2.7% range over the next two weeks due to its comparatively higher 52 week STD.

Keep in mind these are baseline numbers. So a good starting point for IAU maybe in the 2.1-2.5% range but then we take into account the economic factors over the next two weeks that might push it higher or lower or keep it in the middle.

This is just one method to try and determine STD numbers but this is already pretty long so that's probably enough for now.  Luckily the markets are closed today so we have plenty of time to get these estimates.  

I should be around my comptuer most of the day so I'll be able to respond, hopefully promptly, to any questions or comments about this email.

Phil

--
Phil Matta
matta....@gmail.com

[Chris Kuntarich]

So I guess we need to go about figuring out our STD for IVV for the
week. Do we have any suggestions to go about doing this, outside of
multiplying our current STD by (2/3)? Has equities seen anything in
any of the major sectors sans energy and industrials?

Weighted average of the sectors STDs based off our ETFs that represent
those sectors, and ballpark the rest of them off of whatever we see in
the news before the bell tomorrow? If that makes sense to anyone, or
seems like a reasonable way of doing this.

Get back to me.

> matta.phi...@gmail.com

[Phil Matta]

1 week or2 week time horizon for returns and STD?

From a historical perspective, the actual return and actual standard deviation for the IVV over the last 2 weeks has been: Return = 1.47%, STD = 0.66%

So for the next two weeks, do we expect the IVV to be up more than this or down from this?

Do we expect the volatility and STD to be higher than the last two weeks or less than?

My personal opinion, seeing as oil prices spiked to a nine month high since Iran cut off Britain and France and the possibility of a Greek resolution today or at least this week is that volatility will go up these next two weeks compared to the last two.  The return could go either way depending on how the market interprets the Greek deal and the movement of oil.

Let the discussion begin.

Phil

--
Phil Matta
matta....@gmail.com

[Jamie Isetts]

I firmly believe that at least for the beginning of the week, IVV
returns will be higher than normal. As for a two-week estimate, I feel
like we'll start seeing the bearish streak Thurs or Friday once some
specifics come out and bond yields hover back up a bit.

I suggest we go with an estimated 2 week return of 1.65% and an STD
of .9 (I think IVV is really going to swing within the next two
weeks). That being said, I support an strategy where, if we see
certain bearish indicators later this week, we shift more and more of
our bullish stocks to that and ICLN as a hedge. Our entire portfolio
is bull-oriented, so we need to hedge against losing big if some
Europe event this week causes a bearish rush.

[Phil Matta]

Seems reasonable and sound.  Anybody else?

I need firm numbers for the ETF's before I can I can run the allocation program.

Phil

--
Phil Matta
matta....@gmail.com

[Jamie Isetts]

ICLN: 5.5% (in keeping with current growth pattern, but accounting for
a bit of a slowdown with IVV increase)
EEMS: 4% (An initial hop from growing volatility, but then a slowdown
as people become slightly more comfortable with Europe)
IJR: 2% (just beta * IVV return)
IYT: 1.55% (ditto as above, but hasn't been doing very well in the
past two weeks, so expecting a bounceback with equities increase, then
a slowdown)
SOXX: 2.5% (Intel expanding into radio, news announced over the
weekend)

[Phil Matta]

I posted our asset allocation to our group.  Let me know if you have any questions or comments or trouble accessing it.

All the best,

Phil

--
Phil Matta
matta....@gmail.com