Adaptive leverage - a multi-bank strategy


The strategy maintains two banks: the Investment bank and the Profit bank. Both banks hold stocks and cash.

Investment bank's assets are intended for higher risk trading. Profit bank's assets are intended for conservation and occasional lower-risk trading.
Generally, profits are transferred from the higher-risk Investment to the lower-risk Profit bank.

Initially, the capital is split between the investment and the profit bank (mostly allocated to the investment bank).

The Investment bank is normally fully invested into a 2x-leveraged fund (e.g., SSO) and increases the leverage to 3x (e.g., UPRO) on a major drop from the all-time-high of the general market.
Every time the total value of the Investment bank grows by a certain percent (e.g., 5%) all the profits are taken and transferred (in cash) to the Profit bank.

The Profit bank is normally all-cash. On a major drop from the all-time-high of the general market, the Profit bank increases the leverage to 3x by investing fully into a 3X fund.
As the market recovers, the Profit bank down-leverages all the way to 2x, 1x and all-cash again.

Example   Test it!


Simulation on a single period

Note: We quote the results for the period from 2008-10-31 to 2018-10-29. Review the simulation for other periods.

Key indicator Value Description
Annualized return 12.35% Compound annual return (CAGR) over the period
Max drawdown -60.73% Maximum loss relative to the initial value experienced over the period

Statistical simulation

Note: We simulate over all 10-year periods in the past 25 years (at 1 week step).

Key indicator Value Description
Percentile 20% of annual return 6.93% 80% of the periods produced this annualized return (CAGR) or better
Percentile 20% of max drawdown -71.24% 80% of the periods experienced this max draw-down (relative to the initial investment) or better