Optimizing Portfolio Allocation for Market Signals

The principle is to allocate more to markets exhibiting stronger signals in time series or cross-section. Signal predicting return dictates the buying strategy, whether it's buying what goes up, has more carry, or has realized more negative skewness. The strategy for trend following optimization should differ from carry or skewness, as wall scaling or correlation penalization may be needed for the skewness portfolio. Trend following not only benefits from wall scaling, but also benefits from markets exhibiting serial correlation between wall spike and subsequent return. This allows for dynamic scaling of exposure and double performing. It's important to make the right connection and avoid unintended clashes, as no one size fits all in portfolio allocation.