The Risk Rebalancer is TradeStops’ breakthrough tool for creating portfolios with risk parity. But sometimes you might want to hold onto a stock and not include it in the results. It’s easy to do.
We’ve shown you the results of portfolios that could have been improved dramatically by using risk parity. Risk parity means you’re taking the same amount of risk in each position.
These are the results of an actual customer portfolio. Had this investor been using risk parity, with the same stocks, the results would have been dramatically different.
Rather than losing almost 1/3 of the portfolio’s value, the investor would have made more than 50% on his money over the long run.
Even the billionaires could have made more money using the risk parity algorithms in TradeStops. Warren Buffett could have made 25% more had he used the Risk Rebalancer to determine his position sizes.
Here’s a sample portfolio that is invested with an almost equal amount of dollars invested in each position. This is the way many individuals invest into their trades.
Even though the same amount of money is invested in each trade, the amount of risk exposure is greatly different. For instance, this investor is taking about $800 of risk in KO, but over $2200 of risk in NFLX.
By running the Risk Rebalancer on this portfolio, the risk per position becomes the same at 1.35% of the portfolio or, in this case, about $1500 per position.
But what if I don’t want to make any changes in the amount that’s invested in a particular stock? The NFLX position has a gain of over $4700. If I don’t want to sell any shares of NFLX, but still want to rebalance the portfolio, it’s easy to do.
Just click the “Lock” icon next to the ticker symbol. This will lock the number of shares in the Rebalancer so that you don’t have to make any changes.
When you rebalance, you’ll see that the number of shares in NFLX remain unchanged, but the other positions have been rebalanced.
If you have any questions about how to use the Risk Rebalancer for your special situation, be sure to check the Help Center.
Creating risk parity in your portfolios has never been easier to achieve. It’s all a part of the TradeStops mantra.
Make More. Risk Less.
Tom Meyer
Education Director, TradeStops
