Minimum Correlation Algorithm:

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This is a support page for the "Minimum Correlation Algorithm" paper. The paper presents a new heuristic portfolio allocation algorithm developed by David Varadi. The Minimum Correlation Algorithm is fast, robust, and easy to implement.

Here are the support documents:

• Minimum Correlation Algorithm Paper
• Weekly Back Test reports
• Monthly Back Test reports
• R code

Each Back Test report includes following sections:

• Page 1 - Equity curves for all strategies
• Page 2 – Summary performance tables
• Page 3 - Composite Diversification Indicator (CDI)
• Page 4 – CDI rank for all strategies based on different weighing of Diversification Ration and Risk Dispersion
• Pages 5,6 – Relative rankings for all strategies
• Page 7 – Holdings statistics for all strategies
• Pages 8 – 13 – Detailed performance report for each strategy
• Page 14 – Transition map of allocations (weights) for each strategy
• Page 15 – Transition map of risk contributions for each strategy

To reproduce the back-test reports presented in the paper, please execute following R code:

###############################################################################
# Load Systematic Investor Toolbox (SIT)
###############################################################################
setInternet2(TRUE)
con = gzcon(url('http://www.systematicportfolio.com/sit.gz', 'rb'))
    source(con)
close(con)

# Load supporting R code for Minimum Correlation Algorithm Paper
con=url('http://www.systematicportfolio.com/mincorr_paper.r')
    source(con)
close(con)

#*****************************************************************
# Load historical data sets
#****************************************************************** 
    load.packages('quantmod')   
    
    #*****************************************************************
    # Load historical data for Futures and Forex
    #****************************************************************** 
    data <- new.env()
    getSymbols.TB(env = data, auto.assign = T, download = T)
        
    bt.prep(data, align='remove.na', dates='1990::')
    save(data,file='FuturesForex.Rdata')
    

    #*****************************************************************
    # Load historical data for ETFs
    #****************************************************************** 
    tickers = spl('SPY,QQQ,EEM,IWM,EFA,TLT,IYR,GLD')

    data <- new.env()
    getSymbols(tickers, src = 'yahoo', from = '1980-01-01', env = data, auto.assign = T)
        for(i in ls(data)) data[[i]] = adjustOHLC(data[[i]], use.Adjusted=T)                            
    # TLT first date is 7/31/2002
    bt.prep(data, align='keep.all', dates='2002:08::')
    save(data,file='ETF.Rdata')

    
    #*****************************************************************
    # Load historical data for dow stock (engle)
    #****************************************************************** 
    load.packages('quantmod,quadprog')
    tickers = spl('AA,AXP,BA,CAT,DD,DIS,GE,IBM,IP,JNJ,JPM,KO,MCD,MMM,MO,MRK,MSFT')
        
    data <- new.env()
    getSymbols(tickers, src = 'yahoo', from = '1980-01-01', env = data, auto.assign = T)
        for(i in ls(data)) data[[i]] = adjustOHLC(data[[i]], use.Adjusted=T)                            
        
    bt.prep(data, align='keep.all', dates='1980::')
    save(data,file='Dow.Engle.Rdata')


    #*****************************************************************
    # Load historical data for ETFs
    #****************************************************************** 
    load.packages('quantmod,quadprog')
    tickers = spl('VTI,IEV,EEM,EWJ,AGG,GSG,GLD,ICF')
        
    data <- new.env()
    getSymbols(tickers, src = 'yahoo', from = '1980-01-01', env = data, auto.assign = T)
        for(i in ls(data)) data[[i]] = adjustOHLC(data[[i]], use.Adjusted=T)                            
        
    bt.prep(data, align='keep.all', dates='2003:10::')  
    save(data,file='ETF2.Rdata')

    
    #*****************************************************************
    # Load historical data for nasdaq 100 stocks
    #****************************************************************** 
    load.packages('quantmod,quadprog')
    #tickers = nasdaq.100.components()
    tickers = spl('ATVI,ADBE,ALTR,AMZN,AMGN,APOL,AAPL,AMAT,ADSK,ADP,BBBY,BIIB,BMC,BRCM,CHRW,CA,CELG,CEPH,CERN,CHKP,CTAS,CSCO,CTXS,CTSH,CMCSA,COST,DELL,XRAY,DISH,EBAY,ERTS,EXPD,ESRX,FAST,FISV,FLEX,FLIR,FWLT,GILD,HSIC,HOLX,INFY,INTC,INTU,JBHT,KLAC,LRCX,LIFE,LLTC,LOGI,MAT,MXIM,MCHP,MSFT,MYL,NTAP,NWSA,NVDA,ORLY,ORCL,PCAR,PDCO,PAYX,PCLN,QGEN,QCOM,RIMM,ROST,SNDK,SIAL,SPLS,SBUX,SRCL,SYMC,TEVA,URBN,VRSN,VRTX,VOD,XLNX,YHOO')
        
    data <- new.env()
    for(i in tickers) {
        try(getSymbols(i, src = 'yahoo', from = '1980-01-01', env = data, auto.assign = T), TRUE)
        data[[i]] = adjustOHLC(data[[i]], use.Adjusted=T)                           
    }
    bt.prep(data, align='keep.all', dates='1995::')
    save(data,file='nasdaq.100.Rdata')


    
    
#*****************************************************************
# Run all strategies
#****************************************************************** 
    names = spl('ETF,FuturesForex,Dow.Engle,ETF2,nasdaq.100')   
    lookback.len = 60
    periodicitys = spl('weeks,months')
    periodicity = periodicitys[1]
    prefix = paste(substr(periodicity,1,1), '.', sep='')
    
    
    
    for(name in names) {
        load(file = paste(name, '.Rdata', sep=''))
        
        obj = portfolio.allocation.helper(data$prices, periodicity, lookback.len = lookback.len, prefix = prefix,
            min.risk.fns = 'min.corr.portfolio,min.corr2.portfolio,max.div.portfolio,min.var.portfolio,risk.parity.portfolio,equal.weight.portfolio',
            custom.stats.fn = 'portfolio.allocation.custom.stats')      
            
        save(obj, file=paste(name, lookback.len, periodicity, '.bt', '.Rdata', sep=''))
    }
        
    
    #*****************************************************************
    # Create Reports
    #****************************************************************** 
    for(name in names) {
        load(file=paste(name, '.Rdata', sep=''))
        
        # create summary of inputs report
        custom.input.report.helper(paste('report.', name, sep=''), data)
        
        # create summary of strategies report
        load(file=paste(name, lookback.len, periodicity, '.bt', '.Rdata', sep=''))
        custom.report.helper(paste('report.', name, lookback.len, periodicity, sep=''), 
            create.strategies(obj, data))   
    }

    
    #*****************************************************************
    # Futures and Forex: rescale strategies to match Equal Weight strategy risk profile
    #****************************************************************** 
    names = spl('FuturesForex') 
    for(name in names) {
        load(file=paste(name, '.Rdata', sep=''))

        # create summary of strategies report
        load(file=paste(name, lookback.len, periodicity, '.bt', '.Rdata', sep=''))
            leverage = c(5, 4, 15, 20, 3, 1)
        custom.report.helper(paste('report.leverage.', name, lookback.len, periodicity, sep=''), 
            create.strategies(obj, data, leverage)) 
    }