Z8 clarification

I have gone through the Financial Hacker's blog "Get rich slowly" and manual about Z8, I am not sure if I understand everything right. Please correct me if anything wrong.

1. Z8 is a buy-hold system.
2. Z8 uses MVO to allocate capital other than 1/N.
3. Z8 does NOT short assets even when the assets can be shorted like stocks.
4. In case of market shock, all assets' returns turn to positive like 2008 or Jan/Feb 2016, Z8 will suffer.
5. Z8's return comes from the asset's long term positive mean return, not trading.
6. Z8 always puts all the capital into positions and won't keep cash.
7. Z8 does not do phantom trade, Z8 does not know which component/asset is profitable or not, so won't suspend any unprofitable assets.
8. Z8 uses distant stop loss.

Thank you

Hi Jeff,

I think your understanding is the same as mine except for point 8. There are no stop loss.

I am new too and my knowledge is limited.

Regards

Hi Firecrest,

Thank you for your comments. I am new too, let's wait and see if anyone else would comment on this.

Actually I am worried a little bit if Z8 doesn't sell or short, like now, the US market has been bull for 8 years and we have a new unconventional administration, a serious market wide correction could happen anytime, in this case, Z8 will suffer. I am thinking that maybe we can put a "safe net" for Z8 to manage the risk like that. I recall someone mentioned this but I couldn't find it.

Hopefully can get some hint here.

Have a nice day

Jeff

Jeff1228: I recommend checking Antonacci's Dual Momentum book for inspiration and for more information on momentum-based trading.

Hi pcz,

Thank you so much for your comment.

I have checked that out and watched the video on his website, it's clear and helpful. I guess Z8 is an upgraded version of his dual momentum method, is it?

Anyone can share the Zorro script for MVO/Z8 system? I understand the jcl has put all important part of script online for sharing, but I still need the script for the trading part as I am not a programmer and I don't want to make any mistakes.

Thank you and have a very nice day!

Jeff

I think Z8 is different at least in that it doesn't switch its positions to aggregate bonds in times of crisis. I'm also not sure whether it uses both relative and absolute momentum but I haven't studied the Z systems much yet. Maybe someone else will clarify.

Z8 has bond ETF, similar thing.

I found in MVO script, the results will differ greatly using different lookback period, interesting.

Thank you.

Superbowl time!

Hi PCZ,

I think Z8 uses relative momentum. One important factor of Z8 is that the ETFs have to be uncorrelated.

Regards

Yes, thank you both for clarification. One more thing I wanted to say: although I got slightly worse results backtesting dual momentum strategy described in the book (might be my mistake) and despite the fact that it hasn't been performing that well recently, it's definitely worth reading just to learn more about momentum ("the premium anomaly":)), index funds, actively managed funds, their real edge etc.

Also, dual momentum is very long-term strategy. Using somewhat shorter lookback period might help but probably at the expense of annual return.

Dear PCZ,

Would you be able to share the script of Dual Momentum Strategy? It is worth looking into it. Maybe collective knowledge may help to improve it.

Regards

firecrest: I will but I have to go through the code again to tidy it up and add comments so it will take some time. Also it's in R if you don't mind.

You can find the implementation along with some comments and results here:
http://statsmage.com/dual-momentum-strategy-implementation/

It seems that with the selected ETFs I get results quite similar to Antonacci's, although the allocations differ slightly. If you find any errors please let me know.

Dear PCZ,

Thank you. Let me try to learn R too.

Regards