In our recent webinar I spoke briefly about the advantages of diversifying between our two strategies; JC05 and JC07. These comments could not have come at a better time, as JC07 is currently treading water, our other strategy (JC05) has made a sizeable return of about 11% so far for September. This mean for those who have decided to trade both strategies have still made a nice return for the month.
Why Diversify? - Diversifying between the two strategies give the investor a smoother return – this means smaller overall drawdown and more consistent monthly return. The proof in this is the Standard Deviation of monthly returns. Standard Deviation is a quantity expressing by how much the monthly returns differ from the mean value for the group. In figure1, you will see the difference in each strategy verse it’s effect as a combination (monthly cumulative chart 09/2014 to 09/2016) (right).
JC07 has a standard deviation of 9.37 and JC05 has a standard deviation of 4.60 where the measure for the combined strategies is 6.64. This implies the investor would make a greater return (in dollars) with less risk than if trading JC07 alone. Take note of the drawdown of both JC07 and JC05 compared to the combined amount in figure2 (left).