I’m here back again from holiday.. Seasonality is not so good, but we have a very nice pattern here with strong t-score, confidence above 99%… I will be long on SPY.. have a good night!
| NT | %W | PF | AW | AL | MAX | MIN |
| 72 | 65,28 | 2,71 | 0,71 | -0,49 | 4,71 | -2,42 |
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This mathematical effect goes back to its discoverer Claude Shannon:
Markowitz portfolio theory is entirely based on the Shannon's Demon Effect: a portfolio of financial instruments or trading systems can beat the average return of all its components only if their correlation is low or, even better, is negative.
These computational effects are also stronger the often the portfolio is rebalanced.
This incredible edge coming from diversification can even transform a two systems portfolio with negative returns in one single low correlated and frequently rebalanced porfolio with a positive average return.
In this file:
I show how overall results are boosted by Shannon's Demon with 3 simple strategies that are rebalanced daily. One buys long each night from close to next day's open, one from close to next day's close and one from open to close (intraday). It is clearly evident how much overnight trading has a low correlation with other time frame strategy proxies and why it should be included in a trader's portfolio.
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Marco Simioni