Has anybody found a way to logically understand which strategy is better in what type of market? It is mind boggling. Buy and hold… constant mix,…CPPI…
constant mix is best if its a range-bound/volatile market… like say equities dip 20%, then up 15%, then down, then up, etc… you want constant mix, cause u would have bought equities after the sell-off then sold if they rise a lot. but if its a trending market, like up, then up, then up some more… you would rather have CPPI cause you keep buying more as it rises
CPPI does well in trending markets, constant-mix does well in oscilating markets. Buy and hold is between them.
Do we need to calculate anything? How about risk?
for constant mix - risk tolerance is constant for buy and hold - risk tolerance is increasing with wealth for CPPI - risk tolerance is increasing with wealth more so than buy and hold
the graph of CPPI is convex, constant mix is concave, buy and hold is linear. Constant mix has no cash floor, but CPPI and Buy and Hold do.
for cppi = m(TA-F) for stocks, m should be >1
I kinda know this but it’s hard to remember…
derswap07 Wrote: ------------------------------------------------------- > I kinda know this but it’s hard to remember… welcome to level 3, I feel that too
(1) Buy and Hold is when you dont want ongoing monitoring and therefore, wants low management costs (2) Not too certain about Constant mix but it will depned on your IPS. However we do know that it will underperform in up trending market since it is constantly selling into a rising market. This is why the payoff is concave as pointed above where portfolio increases at a decreasing rate. (3) CPPI does well whenever their is a trending market