Premade Templates
Templates approximate the rules of some of our existing NDW models. Model Templates listed as "w/ sweep" add a cash component to your model to raise cash in down markets using our Sweep Down functionality. In order for this Sweep Down to be included in your model rules, MNYMKT (our money market proxy) needs to be included in your model universe.
Target Number of Holdings
Your target number of holdings is the number of securities your model will be invested in provided that at least that many meet your buy criteria and overlay criteria. You can define your target number of holdings either as a set number or set percentage of your universe. If you anticipate the size of the universe changing over time and you want the model to adjust the number of holdings based on those changes, setting your target holdings as a percentage of the universe may appropriate. Your model’s projected holdings based on the current matrix ranking will appear in blue in the model preview to the right.
Buy Criteria
The purpose of the Buy Criteria section is to set a minimum threshold above which your holdings need to be ranked in order to be included in the model. This allows you to ensure that if one of your projected holdings does not meet your overlay criteria (for example, a sector maximum) your model will still end up with your desired number of holdings.
The Buy Criteria will only come into play if you add overlay rules to your model in the next step of the model creation process. If you do not intend to add overlay rules, you can set you Buy Criteria equal to your target number of holdings.
For example, if you set your target number of holdings to 5 and your Buy Criteria to 5 and then add an overlay that one of the securities in the top 5 of the matrix does not satisfy, your model will then only end up with 4 holdings.
However, if you set your target number of holdings to 5 and your Buy Criteria to 10, your model can invest in something else in the top 10 that satisfies the overlay rules.
Your Buy Criteria can be defined either by rank ("buy securities ranked X or above in the Matrix") or percentile ("buy securities ranked in the top X% of the Matrix")
For example, to choose holdings from the top 10 in the matrix, select Rank Based from the dropdown, and enter 10 in the underlying box.
To choose holdings from the top quartile of the matrix, select Percentile Based from the dropdown and enter 75 to 100 in the underlying boxes.
The "Entire Universe" option in the Buy Criteria dropdown allows you to ignore the matrix rankings in order to run your model based solely on overlay rules.
If you want to run a model that buys all stocks with Technical Attribute ratings of 3 or above regardless of where they are ranked within the matrix, you can select "Entire Universe" for your Buy Criteria and add an overlay filter in the next step that specifies "TA/Score >= 3"
Securities above your buy threshold but not among your projected holdings will appear in grey in the model preview to the right.
Many of our Matrix-based models are set to buy securities ranked in the top quartile of the Matrix, so that may be a good starting point for testing before adjusting as needed based on the results of your back test.
Sell Criteria
Your model's Sell Criteria determines the position in the Matrix a current holding must fall to in order to be sold. Adjusting your model's Sell Criteria is typically the best way to alter your model's expected risk, return, and turnover.
The appropriate Sell Criteria will depend on the size of the universe, the evaluation frequency, and your desired volatility/turnover. If turnover/volatility is too high, consider moving the sell threshold further down in the Matrix ranking. With larger universes and more infrequent evaluations (i.e. quarterly or longer) you may want to move the sell threshold further up in the Matrix ranking.
Sell Criteria can be set on a rank or percentile basis.
To sell holdings as soon as they fall out of the top 10 in the matrix, select Rank Based from the dropdown, and enter 11 in the underlying box.
To sell holdings when they fall out of the top half of the matrix, select Percentile Based from the dropdown and enter 0 to 50 in the underlying boxes.
Many of our Matrix-based models are set to sell a holding if it falls out of the top half of the matrix, so that may be a good starting point for testing before adjusting as needed based on the results of your back test.
Custom Rule Templates
You can create and save rule templates so you can easily replicate sets of model rules across multiple models. In order to do so:
- Go to your Custom Model Homepage
- Click "Edit my Premades"
- On the "Strategies" tab, click "Create New Template"
- Select the Model Type you want these rules to apply to, enter your desired rules, and click Save
- You will now see your template among the options within the premade template dropdown on the Strategy page of the model creation process