Course Name: Position Sizing in Trading, Section No: 9, Unit No: 2, Unit type: Notebook
The portion of capital used is leverage times the benchmark strategy portfolio value.
I think it should be leverage times the "volatility targeting" portfolio value. volatility_targeting['cumulative_returns'] should be used so that the portion of capital used does not go over portfolio value when leverage cap is 1 (no levarage).
Hi Yuki Harunari,
In the notebook, we calculated the leverage value using the target volatility (0.01) and volatility of asset returns. We have also capped the maximum leverage to 2.
Without using the leverage, the portion of capital used will just be benchmark portfolio values.
Since we are using leverage for volatility targetting, the portion of capital used will be a multiple of leverage and benchmark portfolio values.
If we don't want to use leverage and still want to do volatility targetting,
we will define the 'leverage_cap' as 1 before calculating the leverage for volatility targetting. This ensures that the portion of capital used doesn't go over portfolio value.
Hope this helps,
Thank you