MarketTrak Question/Comment Message

Posted By: Jim   Date: Tue Sep 15, 2009

Title: Your long position

  You mentioned a couple of days ago that your long portfolio consisted of DIA and QQQQ in roughly equal dollar amounts. How did you come up with this proportion?

  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 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).


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