I tried a strategy based on the book, and it stopped working for me sometime in 2017 or 2018. I seem to remember the drawdowns and consecutive losing trades were too high for me, so I gave up on it. The rule of only trading on Wednesdays doesn't make sense to me.
A tail hedging strategy that actually makes money in the long run is actually very difficult to do - I haven't seen evidence that Universa does that, then yes you have a money machine: an asset that will go up in the long run (S&P 500) and another one that perfectly hedges it yet actually pays you to be hedged. GAT
I read the book a while ago, and I can't remember if Wednesdays is arbitrary, deliberate (most people refit weekly strategies on Mondays or Fridays, so why not), or overfitting. Of course you could divide your capital into five and trade one fifth on each day of the week to smooth things out, if you really want the extra work, or just pick another day. What is the definition of 'stopped working'? I'd be surprised if you could have a statistically significant evidence that it had 'stopped working' over what sounds like a period of just a few months. GAT
Code: 2021-02-17:1500.24 {'type': '', 'broker': 'IB', 'clientid': 455} *CRITICAL* Error New capital with new account value of 311522 profit of -45819 is more than 12.8% away from original of 357341, limit is 0.1% whilst updating total capital; you may have to use update_capital_manual script or function A heart stopping email indicating I've just lost 12.8% of my capital in a couple of hours; turns out it was a blip in the IB data, but just goes to show these filters have these place (in this case, preventing my capital series from being overwritten with an incorrect value, which had this happened this evening would have caused uneccessary trading). GAT
Regarding Wednesdays, "Stocks on the Move" says I don't really remember how large the drawdown was, just that it appeared larger than what I saw from backtesting. So it might not have been statistically-significant (I should probably read Robert's "Systematic Trading" book). I guess I was uncomfortable with how my implementation of the strategy entered and exited trends too late.
They have some papers published on their site. E.g. https://www.universa.net/UniversaResearch_SafeHavenPart1_RiskMitigation.pdf From my understanding, they are not after making money in the long run, but to provide a hedge ("insurance") against large market drops. In the paper they explore a "cartoon" example portfolio of 97% S&P 500 and 3% insurance. The insurance loses 100% if S&P 500 performs -15% or better for the year. Therefore you would have a -3% drag on the performance most of the years. In case of S&P 500 ending a year below -15% the insurance pays out 900% return (+27% on 3% allocation). If worse than -15% years happen once in a decade, then the expectancy of this insurance is 0. It turns out even if this insurance is taking away 3% annually and has expected return of 0, it still outperforms the market. The idea is that by eliminating highly negative returns, the mean log return (therefore CAGR) is increased significantly. They call these large negative returns "volatility tax" from which it is hard to recover. To quote their intro paper at http://universa.net/UniversaResearch_SafeHaven_AmorFati.pdf Past returns persist in the present and future via the simple mathematics of compounding: The geometric mean return is mathematically the (exponential of the) average of the logarithms of the arithmetic returns; because the logarithm is a concave function (i.e., it curves downward), it increasingly penalizes negative arithmetic returns the more negative they are. One big loss impacts your CAGR in a painfully disproportionate, exaggerated way, and it never goes away.
I once read the book written by the firms's CIO - "the Dao of Capital." It was a misterious book, with full of philosophical things. The book talks very little of technicals, but it says that you need to buy deep out of the money put option of S&P500, with about 40% implied volatility and with 2 months maturity, and to keep rolling. There is a bloomberg artcle that says the firm gained 3600% return in the crisis 2020 March, which I guess you already know.
You might find "The Alpha Formula" also interesting, which is written by Larry Connors / Chris Cain. I read the free sample pages only but it looked interesting. I was amazed that there are so many books available in market that talks about trading strategies...