So Trending up CPPI beats Buy and hold beats Constant Mix Oscillating Constant mix beats buy and hold, beats CPPI What about downtrending? Is it still CPPI beats Buy and hold beats Constant Mix? At some point Buy and hold and SPPI hit a floor…?
Yes
1- Buy hold is always in the middle btwn CPPI and CM, always second in performance
2- As market trends downward CPPI outperforms CM why? As market down 10% CM tries to increase stock portion of portfolio to its original level and buy more stock, but then one more 10% down…result we basically increase stock whose value keeps decreasing…COnsidering CPPI, it avoids stock as it declines in value…So stock base which is affcted by decline reduces fast. Thus it outperforms both buy hold and CM
3.Buy and Hold hits a floor in his initial cash (T-Bill) weight.
CPPI hits a floor in his minimum allowable cash (T-Bill): Fmin