Tweaking, Trading and Testing Tim’s Strategy
On April 28th, Tim Fortier of True Market Insiders published Sell In May? No Way! where he proposes playing something of a "hot hand" strategy. This is a dynamic trade which is adjusted monthly.
His construct includes taking a long position in the top performing stock of the Standard and Poor's 100 Index over the previous six months. The second part of the portfolio is cash. The weight (allocation) of funds going in the stock is determined by setting the overall volatility of the portfolio to equal that of the market. Currently the market's volatility is fifteen percent according to Fortier.
But in order to calculate the proportion to be invested in the stock, one must know both the volatility of the market and the stock in question. These variables may be found with so...