For several mutual funds, I have their performance (in %) as well as their TNA (in bn) on a monthly basis (months 1 to 193).
Thanks to a previous step, I know for each fund, each month, whether I should take a long or a short position (or do nothing). What do you think is the best way to build my long/short portfolio? Should I have 2 portfolios (one long and one short)? How do I calculate its return?
Thank you very much for your help,
I'm evaluating a strategy ex-post. In a few words, I split funds into different clusters using a dynamic clustering method. In fact, I'm interested in disconnections. The principle: if a fund goes out of its reference cluster (I set 2 periods/month in a row) then I can take a position: long or short, depending on whether it outperforms or underperforms its reference cluster (I compare the fund's return with the average return of its cluster). This until he is back in his cluster. For example, for long positions, I hope that a found that underperforms its cluster, will "go up" to return to it.
From there, I create a portfolio with the returns (weighted with TNA) of the long and short positions.
I've done all these steps but I get results that are not very logical (extreme). Do you think there is a problem somewhere?