Preferred Portfolios: An Improved Blueprint to Construct Multi Strategy Portfolios

Abstract

This paper introduces a blueprint for combining individual strategies into a robust portfolio using five principles. » Continued research is paramount to replenish individual strategies as performance wanes over time » Identifying and classifying strategies correctly based on their dynamic return characteristics leads to temporal validity in portfolio performance » Employing strategies on a diverse set of markets increases the opportunity set available » Understanding the benefits and limitations of diversification guides manager decisions for research and resource allocation » Sufficient time is required to give portfolios the opportunity to prosper from the skill in the investment program Together these five elements build the basis of Statistically Applied Trading (Saτ).