The document discusses portfolio management and backtesting. It outlines various ways to achieve high returns such as through leverage, investing in high beta stocks, and risky assets. However, it notes that risk is also an important factor and discusses risk mitigation strategies like risk transfer through options, risk acceptance by diversifying holdings, and risk reduction techniques like cash levels, rebalancing and hedging. It provides examples of these concepts and concludes with mentioning other portfolio management techniques.

1. Portfolio Management
+ Backtesting
Presenter: Leo Lo 13 Jan 2021

2. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Which fund do you prefer?
20%
Past one year return
Smart Fund A
150%
Past one year return
Smart Fund B
Time
Return
Time
Return

3. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Only Return?
-
-
-
-

4. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Ways to Achieve High Return?
1. Leverage (e.g. Buy option and Future)
2. Long high beta stock (Beta is a measure of a stock's volatility in relation to the overall market.)
3. Long risky assets (High Risk and High Expected Return)

5. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Leverage
Case 1 : Index increases by 1%
Notional value = 28,000 *HK$50 = HK$1,400,000
Your initial capital : HK$1,400,000 * 10% = HK$140,000
Profit = HK$1,400,000* 1% = HK$14,000
Return = HK$14,000/ HK$140,000= 10%
Assumption
Hang Seng index (HSI) and HSI future moves together in both magnitude and
direction and its current value is the same
HSI Current Index 28,000
Contract Multiplier HK$50 per indexpoint
Current NotionalValue HK$1,400,000
Broker's margin requirement 10% initialmargin requirement 5% maintenancemargin requirement
1

6. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Case 2 : Index decreases by -1%
Notional value = 28,000 *HK$50 = HK$1,400,000
Your initial capital : HK$1,400,000 * 10% = HK$140,000
Profit = HK$1,400,000 * -1% = HK$14,000
Return = HK$14,000/ HK$140,000= -10%
10X
leverage
Leverage
Assumption
Hang Seng index (HSI) and HSI future moves together in both magnitude and
direction and its current value is the same
HSI Current Index 28,000
Contract Multiplier HK$50 per indexpoint
Current NotionalValue HK$1,400,000
Broker's margin requirement 10% initialmargin requirement 5% maintenancemargin requirement
1

7. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Ways to Achieve High Return?
1. Leverage (e.g. Buy option and Future)
2. Long high beta stock (Beta is a measure of a stock's volatility in relationto the overall
market.)
3. Long risky assets (High Risk and High Expected Return)

8. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
High Beta StocksHigh Beta Stocks2
Capital Asset Pricing Model (CAPM)

9. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Ways to Achieve High Return?
1. Leverage (e.g. Buy option and Future)
2. Long high beta stock (Beta is a measure of a stock's volatility in relation to the overall market.)
3. Long risky assets

10. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Risky Assets
BITCOIN
(BTC)
Tesla Inc
(TSLA)
S&P
(GSPC_5YR)
Bond_ETF
Volatility: 62%
Very High Risk
Return: 80%
Max. Drawdown: -144%
Volatility: 58%
High Risk
Return: 76%
Max. Drawdown: -86%
Volatility: 19%
Moderate Risk
Return: 15%
Max. Drawdown: -38%
Volatility: 4%
Low Risk
Return: 3%
Max. Drawdown: -6%
3

11. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Risk is also an Important factor in
Portfolio Management
20%
Past one year return
Smart Fund A
150%
Past one year return
Smart Fund B
3
Time
Return
50%
Time
Return
2%

12. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Calmar Ratio
The Calmar ratio measures a fund's performance on a risk-adjusted
basis.
3.1

13. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Maximum Drawdown
A maximum drawdown
(MDD) is the maximum
observed loss from a peak
to a trough of a portfolio,
before a new peak is
attained.
3.2

14. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Maximum Drawdown3.2

15. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Sharpe Ratio3.3
• The Sharpe Ratio describes how much excess return you receive for
the extra volatility you endure for holding a riskier asset.

16. Backtesting
Case: Mei Tuan (3690.HK)
Please download the excel from the inbox.

17. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Risk Mitigation Strategy

18. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Risk TransferRisk Transfer
TSLA' s current price : $850
IF we expect TSLA will make a correction in the future,
Put Option : 10 dollar @$800
Case 1: TSLA goes down to $700
Without Options:
: $(700 - 850) = - $150
With Options:
: $(800 - 850) - $10 = - $60
Third party : $(700 - 800)+ $10 = - $90
Case 2 : TSLA goes up to $860
: - $10 + $10 = 0
Third party : $10

19. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Risk Acceptance
Example: Joho Capital
- AUM : 4.947 bn
- Top 5 holding : 95.3%
- Top 10 holding : 100%
- Largest holding is BABA (44.12%)

20. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Risk ReductionRisk Reduction
Ave: 8.3%/5 = 1.66%
Don't put all your eggs in one basket..

21. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
Other TechniquesOther techniques
Cash Level Rebalancing Hedging
(Shorting futures)

22. Ma c ro S t ra t e g y | F u n d a me n t a l | Te c h n ic al | |
P o rt f o l i o Ma n a g e me n t
+ B a c k t e s t i n g
Tra d i n g S t ra t e g y
( p s y c h o l o g y )
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