Portfolio Diversification

With all credit to www.automated-trading-system.com/the-good-the-bad-and-the-ugly-portfolios/

The choice of instruments in a portfolio turns out to be very important, and it is not at all clear in advance what subset of instruments will perform the best for your chosen strategy. Back testing does not share much light on the subject – you may have just happened to chose a selection of instruments where the chosen strategy performed well by chance.

One possible solution is to expand the concept of diversification across many instruments, systems, parameters and time-frames. This should increase the robustness of your methodology. However, it also increases the capital required to trade a system.

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