How to create a portfolio using the Bridgewater practices We continue to speak about prop trading in try2bfunded and are glad to present a new post which could help traders to complete a trial stage and get funds under management. We share our knowledge of creating a strategy based on a classic hedge fund practices, i.e. a portfolio featuring various asset types and statistical risk control. The perfect portfolio We use a modern portfolio theory to reach long-term high profit. Harry Markowitz and William Sharpe, the economists who developed this method, were awarded the Nobel Prize in 1990 for their pioneering research. The method implies statistical calculation of historical profitability and asset volatility to determine their optimal shares. Proper allocation ensures that the securities yield the intended return and that the risk remains under control. Using long time series about monthly returns, we evaluate the beta of instruments and build a correlation matrix. Look at the results of volatility assessment and correlation of instruments. Statistical evaluation confirms that the most risky instruments are emerging markets stocks, real estate and raw materials stocks, and the most stable assets are bonds. The correlations between stocks and bonds are negative (with rare exceptions, as in 2019) and reflect the fact that recent crises were deflationary due to lower interest rates during periods of recession. Mathematical approach allows you to create a diversified portfolio that will generate income during any phase of the economic cycle. Now we are forming a portfolio also considering the risk parity method, which significantly increases the Sharpe ratio. Risk control is a key part of our trading strategy and try2bfunded rules. To control risks, we have developed a multi-level hierarchical system: at the macro level, at the level of asset class, trading account and a separate instrument. Investment scoring and principles of active management When mathematically perfect instruments are selected, portfolio management is carried out in several stages: A consensus forecast of analyst recommendations. For each instrument, we calculate the probable price that major banks project.Media rating evaluation. We follow the news and statements (as well as the frequency of references) for the purchase/sale of reputable investors on specialized sites and count this “vote”. Media resonance is a powerful argument for rising prices in the short term.Buying/selling funds and insiders. We analyze the volume of transactions and compare it with the median. Active buying signals confidence in the successful future of the company.Automation and control of the speculative part of the portfolio.Continuous improvement and evolution of trading systemsPrompt response to market changesPre-trade control and rebalancing for optimal diversification. At the moment, our portfolio shows 13.47% return with an increase of 9.15% in the S&P 500 for the same period. Of course, every trader has his own trading plan and trading methods, but we hope that our post will be useful for those who want to trade with try2bfunded.