In the March issue of RINA Systems' Performance Update:

         Feature Highlight – Strategies Updated through March 2004
         New Information – PortfolioStream Quick-Start Guide
         Offers - Beta Test Opportunity

Feature Highlight - We have updated the example strategies we previously published (see the November, 2003 - Performance Update edition). The tables below depict the entire historical period performance as well as the performance since our last update. Since the strategies have not been modified since the previous Performance Update of November, 2003 - we have built a reasonable amount of "out-of-sample" results that may be of interest to readers. Because of the long-term nature of many of the trades in the strategies tested, we have also decided to add the Net Profit + Open Position to the statistics table. We think this mark-to-market analysis will give us a better picture of the performance (versus closed trades only).

Consistent with the entire historical period analysis of past performance, as viewed in PortfolioStream, we see in the recent period the shorter time frame strategies (BB_CBO(20,2,0.01), CBO(20,8,0.01)) continue to perform the worst. Perhaps as an indication of the similarity of the strategies we see the 40-day lookback show the best performance for both strategies. While the CBO(80,32,0.01) variation under-performed several other parameters, having been retrospectively (for the whole history) the most profitable, we find it a stretch to attach any significance to results generated by only 5 trades in the recent period.

Correlation Revisited

Noting the similarities between the results of the 2 systems and recalling the high amount of correlation we found in the first out-sample test, we decided to review the correlation of daily returns for the various portfolios. We decided to compare similar parameters (for example, BB_CBO(20,2,0.01) and CBO(20,8,0.01)) to get gain some understanding of our "out of sample" performance since November. Interestingly, while we expected the correlation of the daily returns (change in equity, not level) to be high, we were surprised to find correlations of 0.97 (40 period lookback), 0.94 (20 period lookback), and 0.87 (60 period lookback). This implies nearly identical positions for the strategies in the out of sample period.

If we look at the parameters that intuitively one would expect to generate the least similar returns (CBO(80,32,0.01) & BB_CBO(20,2,0.01) we find that the correlation of daily changes for those is much lower at 0.11. From this analysis of correlation we get an indication that for these two very similar breakout strategies, the period over which the event (the "breakout" in this case) is measured, may impact results much more then the precise entry logic. Although this may not always be the case, it could be inferred with a high probability that this could be true for very similar strategies.

Recent Out-Of-Sample Performance Results - during the period of  November 2003 - March 2004:

Historical Performance Results - during the period of  November 1995 - March 2004:

Alternative Sample Paths

In the previous issue, released in November, 2003 - we introduced the Monte Carlo analysis available in PortfolioStream. In this issue we will further employ this technology to see what other scenarios we may achieve if we resample the daily returns. We will ask the question: "what drawdown could we see over any 20 trading days (1 month), using only the out-of-sample performance from which to infer the future returns (84 trading days of returns)". We would accept that 84 trading days is a very limited sample for this kind of analysis, and even though we have selected the performance since we began testing the systems (out of sample), we still had multiple portfolios / parameters from which to choose. With these caveats in mind, we find that the by bootstrap re-sampling without replacement we get an approximate 20% chance of realizing in any 20-day trading period a drawdown of $271,537.93. Interestingly the realized drawdown in the November to March period was very close for the same parameters at $290,975. When we compare this to the entire historical period we find that of all 2316 days in the sample since 1995, by employing the same 20 trading day simulation of drawdown, we would get a comparable $282,000 drawdown with a 20% probability and a 50% chance of a drawdown equal to or greater than $177,120. One use of this kind of information might be to determine if the trade size relative to the capital backing the positions produces excessive volatility over 20-day periods (calendar month roughly). Below is the graph of cumulative distribution of Maximum Drawdown for 20 trading days, 10,000 iterations:

Complete PortfolioStream reports for both variations of the Channel Breakout strategy are available. For more information click on the following links for PortfolioStream reports during the period of  November 2003 - March 2004:

PortfolioStream report for Channel Breakout (20,8,0.01)
PortfolioStream report for Channel Breakout (40,16,0.01)
PortfolioStream report for Channel Breakout (80,32,0.01)

PortfolioStream report for Bollinger Band Channels (20,2,0.01)
PortfolioStream report for Bollinger Band Channels (40,2,0.01)
PortfolioStream report for Bollinger Band Channels (60,2,0.01)

For more information click on the following links for PortfolioStream reports during the period of  November 1995 - March 2004:

PortfolioStream report for Channel Breakout (20,8,0.01)
PortfolioStream report for Channel Breakout (40,16,0.01)
PortfolioStream report for Channel Breakout (80,32,0.01)

PortfolioStream report for Bollinger Band Channels (20,2,0.01)
PortfolioStream report for Bollinger Band Channels (40,2,0.01)
PortfolioStream report for Bollinger Band Channels (60,2,0.01)

For a complete review of the system logic and concomitant TradeStation code click here, which references the October issue of Performance Update.

Notes on studies:

The average trade value is on a per trade basis. Nearly all of the trades simulated here were multiple contract trades due to the fact they were geared to risk 1% based on a hypothetical constant funding of 1 million dollars. The per-contract average trade would have obviously been much smaller. Finally, the maximum drawdown is the largest peak to trough dollar drawdown for the portfolio during the tested period.

To help users get up and running in the smoothest possible fashion, we have created a new Quick-Start Guide for PortfolioStream users. The Quick-Start Guide has instructions on how to install the application for various versions of TradeStation, common items to check for the first use, and a walk through of a strategy. Existing customers can request a quick start guide by sending an email to the following address: support@rinasystems.com The guide will be especially useful to clients who use TradeStation 7 and above due to some recent changes in TradeStation.

We are currently developing Performance Suite version 7 and have a limited number of spots available in our beta test. If you would like to participate please send an email to support@rinasystems.com, indicating your interest to participate. Generally we give preference to existing users for available spots, however, being an existing client is not necessary for participation in beta-testing. Therefore, if you are not a current user but would like to participate please tell us a little about yourself so that we can assess if participation would benefit both RINA Systems and the prospective beta tester. In the next issue of Performance Update we will describe in detail some of the exciting new features scheduled to be included in Portfolio Evaluator 7 and Money Manager 7. If you would like to contact RINA Systems, Inc. you may do so via phone at (513)-469-7462, via fax at (513)-469-2223, or via e-mail at info@rinasystems.com

The purpose of the Performance Update newsletter is to offer ideas and educational samples of strategies through the use of RINA Systems software applications. The strategies described in the Performance Update newsletter are not intended to be used as actual trading strategies, but are included for educational purposes only. No offer or solicitation to buy or sell securities, commodities or securities derivative products of any kind, or any type of trading or investment advice, recommendation or strategy, is made, given or in any manner provided by RINA Systems or any of its affiliates. If such advice is sought, the services of a licensed professional should be obtained. Past performance, whether actual or indicated by historical, simulated tests of strategies, is no guarantee of future performance or success. Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record simulations do not represent actual trading. Also since the trades have not actually been executed the results may have under - or over - compensated for the impact if any, of certain market factors such as liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is a significant risk of loss involved in futures and securities trading. RINA Systems, Inc. will not be responsible for any losses or lost profits resulting from investment decisions based on any RINA Systems product or service information obtained through use of any RINA Systems product or service or otherwise. TradeStation® and EasyLanguage® are registered trademarks of TradeStation Technologies, Inc.