[DcifrThs]

just to be clear:

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and from Barron:

long USD/JPY


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that is suppposed to be long JPY/USD i.e. betting that the japanese yen will rise relative to the USD.

anyways, interesting thread...a few thoughts.

what do you mean by "beta adjusted weighting"?

do currencies/commodities have betas? if so i haven't seen them. if not, then the beta weighting won't work in that part of the portfolio since those two are hugely volatile and are not easy to get without a lot of leverage (except gold of course).

also 12 stock picks @ 5% each with "limited market risk" are gunna be hard to find. further, many stocks i see quoted on here would eat up more than 5% worth of vol in risk space relative to the entire portfolio.

overall though, your general idea is good since currencies, commodities and stocks aren't highly correlated, the alpha portfolio would have a good structure.

further, if you really wanted to isolate your bets, you'd pick those 12 stocks with "limited market exposure" and short some % of the risk you allocated to those 12 picks in the S&P 500 futures market (so if the market falls, you don't lose much money via your longs in those stocks but gain money via the short of the futures market of the S&P500)

just some thoughts,
Barron