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Response:
Normally, I would just buy DIA alone when long. But I sometimes will add
another stock or two to improve performance. I determine the distribution/proportion
using a Modern
Portfolio Theory model. Briefly, this theory is used to determine a diversified
portfolio that gives you the greatest return per unit of risk. It did not do
particularly well last year when the market collapsed. But it can be used to
improve returns when you have some other model (such as ours) that will tell
when to be in and when to be out of the market. A good website to query this
theory is WolframAlpha.com. The two stocks I selected for analysis are DIA and
QQQQ. I selected these two because my model forecasts DIA and because QQQQ has
a great YTD return and it correlates well (but not perfectly) with DIA. When
you look at the suggested distribution shown when you click on the link below,
you will see that the two stocks should be bought almost equal dollar amounts
(as of the date above).
http://www.wolframalpha.com/input/?i=dia+qqqq
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