The ALPHA SYNTHESIS may be used as an
1. Investing or Trading Vehicle to produce low risk returns, or
2. Asset Class by itself in an MPT-based strategy to with classical asset class allocation.
1. INVESTING or TRADING Vehicle
The system may be used to trade index or sector vehicles, ETF's, or basket of stocks in a portfolio that you have constructed. For example, this may include ( but is not limited to ):
QQQ - Nasdaq 100 Index
IWM - Russell 2000 Index
MDY - SP Midcap Index
DIA - Dow Jones Index
SPY - SP500 Index
HIGH YIELD BOND INDEXES
HYG - ISHARES High Yield Corporate Bond Fund
FAGIX - FIDELITY Capital and Income Fund
JNK - BARCLAYS High Yield Capital Bond SPDR
XLK - Technology Select SPDR
BBH - Biotech HOLDR Trust
SMH - Semiconductor HOLDR Trust
BASKET OF INDIVIDUAL STOCKS OR PORTFOLIOS
In general, any number of stocks, etf's, funds, vehicles or portfolios with correlation coefficients > 0.8 with the SPX or NDX may be used with this system. If you have a higher starting aggregate beta or leverage for your stock portfolio, you will likely reduce this value on the ALPHA SYNTHESIS, but may nevertheless encounter more variability in your returns and portfolio volatility than if you were using a more balanced INDEX vehicle.
2. ASSET CLASS in MPT
Modern Portfolio Theory (MPT) essentially states that a portfolio is more efficient in terms of risk and reward if the components are taken as a whole and the entire portfolio is evaluated for risk and return. Importantly, there must be several components ( ideally, asset classes ) and they must each have low correlations with all other components of this portfolio. MPT is a sound method for many investors in establishing a disciplined approach to investing. It simply assumes that most investors dislike risk, and will make decisions based on maximizing returns for a level of risk that is acceptable to them - conventionally understood to be techniques which reduce exposure to individual asset risk by holding a diversified portfolio of assets. The ALPHA SYNTHESIS may be used as an alternative to passive investment/reallocation strategy of the following asset classes-
EQUITY ASSET CLASS - Actively Trading the vehicles outlined above in lieu of passive or active investment by virtue of higher, stock-like returns.
BOND ASSET CLASS - Actively trading the vehicles outlined above to produce low, bond-like correlation and volatility / portfolio risk.