Has anybody tried going long on CAPS 5's and short on CAPS 1's.Seems to me if you buy a diversified basket of 5's and sell a comparably sized,diversified basket of 1's; you're betting that the 5's will outperform the 1's, and it doesn't matter which way the market goes.
I believe this is a generally winning strategy, because you're betting on merit-based, forward-looking community intelligence coming from the world's greatest investing community.That said, there are approximately 1000 5-stars, and 1000 1-stars, so you have to be selective. The strategy therefore comes down to WHAT you select, based of course on HOW you select.But I think you're absolutely fishing in the right pond, regardless. --David
Any chance we'll see this type of strategy on the asset management side?Ryan
Any thoughts as to how one might go about filtering the 1,000 CAPS 5's and the 1,000 CAPS 1's, down to right-sized "baskets of stocks"?
Interesting question. However, I can think of a lot of 5's that look really bad lately, so if you are going to test the theory, you will have to state how long it will take before you can make a valid conclusion.
I would expect the 5's to not be looking so good. But we don't care. We just want the 5's to be significantly less awful than the 1's. And if they're not, what's the point of the rating system?
Has anybody tried going long on CAPS 5's and short on CAPS 1's.Not specifically. However I hedge invest constantly, as I really like the stable returns it produces. My goal is always to be market neutral. One trade I have run for several months has been Long SPY, Short IAT. This is not a recommendation...I've had a winning 6 percentage point spread on it, but I need to determine if it is still a keeper.I would need a lot more information on the historical performance of Cap selections per rating, to confidently use it as a base for a hedge strategy. Even if I had strong evidence the community could produce out-sized returns, I will still only use it as a screen rather than a mechanical strategy.
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