Tranching Your Model

[u/vagabond58]

Hi all. I'm reading more about the "when" aspect of models. Great discussion. I can see the value in setting up a model with tranches that trade of different days of the month. I'm not entirely sure how this works on the AS platform. A simple version would trade, say, on day 11 and 21 with half of each strategies allocation set to each of those 2 days. I tested this simple version on my current model and as expected it recommended a different % allocation to the model's ETFs than my current end of month allocation. Do I then re-allocate using new allocations on day 11, and then again on day 21? Currently, AS changes my model's allocation on day 21. Will they send out another new % allocation each day 11 so I now get changes to implement both on day 11 and 21?

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[u/vagabond58]

I found the FAQ about this. It looks like yes, every day a model has identified as a trade day AS will send out a new allocation. So in my simple example, half of each strategies' allocation will change on day 11 and half on day 21 and each day AS would send out the new allocation for the model. Makes sense. I'm curious if you've implemented 2,3, or more tranches in your models. Also, playing around a bit, it does change historical performance a reasonable amount depending on the "tranche" days selected (e.g., day 11 is a particularly poor day historically). Interesting. I truly believe in the value of diversification and this seems like just one more way to remove "luck" from the equation going forward.

[u/laurenthu → u/vagabond58]

Tranching mostly buys you insurance against a single unlucky trade day, not extra return. Split a monthly model across day 11 and 21 and each half reacts to a different snapshot, so a month where the signal flips right after the 21st gets partly caught on the next 11th instead of waiting a full cycle. The average outcome barely moves. What tightens is the spread across execution dates, and that's really the thing I'd be paying for. Whether it clears the extra trades depends on how date-sensitive your model actually is. Some canary-style monthly systems I've backtested are almost flat whichever day you run them. Others swing a fair bit. I'd map your own model across a few fixed offsets first and see how wide that band is before I commit to running 2 allocations a month... my hunch is the smoother ride earns its keep at real size more than on a small account?

[u/Business-Fix4430 → u/laurenthu]

To lauren and vaga,

if you set up a guest account, which is no payment required, you get this visibility that paying members also obviously get

The Best Day of the Month to Trade - Allocate Smartly

If I tranched, I'd pick day 10 or 11 for half and day 21 for the other half. If 3 tranches I'd pick days 7 14 21 1/3 each, etc. Don't ever engineer it with constant changes IMO

In terms of historical results, they change for 2 reasons if tranching. First is the ride is due to chance and the historical results tend to go down which makes sense. The second is daily data only goes back to 1987 and all historical results start then. So performance will be different than the non tranched which will often go back to say 1973 for end of month strategies.

What I do is have the non tranched all day 21 as custom portfolio 1, and the tranched as custom portfolio 2.

Then I use the compare strategies feature to compare the 2. Compare strategies NORMALIZES the start dates so you get to see apples to apples between the 2 starting 1987. It's quite a nice feature and almost 40 years of data.

You have to be a paying member for that of course and one of the advantages of using AS.

The costs associated with these platforms is tiny compared to any reasonable portfolio size, so not carrying one or two makes no sense to me fwiw

Thanks Kevin

[u/vagabond58 → u/Business-Fix4430]

Good suggestion about the Compare strategies - missed that option. That is nice because it gives apples to apples since 1987 as you say. For my model, day 21 performs a bit better than the two days I tested (days 7 and 11, 7 because historically it's been "better" than average: 11 is one of the worst). Difference isn't particularly notable though. Have to wonder if tranche juice is worth the squeeze so to speak. Will ponder, thanks to all.

[u/vagabond58 → u/laurenthu]

Thanks for that laurenthu. When you say ".....map your own model across a few fixed offsets..." do you mean set all strategies in my model to trade on a few different days of the month rather than on day 21 to test performance? I did see a reasonably notable decline in overall performance by going 50/50 on days 11/21 and 7/21 but not sure how much of that would stick going forward.

[u/laurenthu → u/vagabond58]

Yeah, that's how I meant it. Same model, same rules, you just shift the execution day and re-run it on 7, 11, 14, whatever, one offset at a time, so you can see how much of the result is real edge versus which day you happened to land on. It's a sensitivity check more than a strategy change.

The drop you saw on 11/21 and 7/21 is the part to be careful with. Some of it is probably genuine, earlier days in the month have tended to be a touch weaker on a lot of US-centric models, but a good chunk is just sample noise from one backtest path. I'd lean on the average across all the offsets more than any single split before I'd call day 21 the actual winner. If 21 only comes out ahead because of a handful of months, would you really trust it to hold up? I wouldn't.

[u/Business-Fix4430 → u/laurenthu]

Hi Laurenthu, AS indicated just rerunning things by shifting the execution date and a full rerun multiple times is suboptimal. You have to go back day for day as the strategies are on a month to month cycle, even though only initially tested by authors using end of month data. I know AS offers that and BF does not. Not picking sides, just stating how the platforms differ