What if we were to apply the Shannon method to the Permanent Portfolio discussed last week? The Permanent Portfolio used for testing was equal parts of VTI, TLT, SHY, and GLD. The plot above shows the results for the last three years for buy and hold and for Shannon style rebalancing. The rebalancing has helped a little bit since March 2009.
If we add a short SP-500 position (SDS) to the asset mix, the results are of course better as the market has had a rough couple of years. But, notice how much better the Shannon style rebalancing has done compared to buy and hold. This plot above shows the results for the last three years for a portfolio consisting of equal parts TLT, SHY, GLD, and SDS and a double allocation to VTI. Perhaps active rebalancing between an index and a short position in another index is what is need in uncertain times?
The correlations of the portfolio components are listed in the table above. Are there any asset classes that have a negative correlation to the stock market other than bond funds and short funds?
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