I agree with that!* I have never disagreed with it! I didn't bring up shannon's demon -- I only pointed out that it doesn't work on price series that have zero arithmetic return (which is true of the price series I was using).
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That is a very simplistic view of what vol pumping is. Vol pumping isn't abut an asset with zero geo return, its just the most eye catching type. There are plenty of articles on vol pumping where cash isn't involved, and the "pumping" is just between a bunch of risky assets.
This is exactly the same as saying that by diversifying you can reduce the volatility drag of a portfolio of assets, right? ie “diversification is the only free lunch in investing”.
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These buzzwords/terms just describe the general trading problem we're all familiar with don't they? If you find a stable (Geo mean = 0) noisy thing you can trade deviations from it. Where do I find this stable noisy thing? Well, indeed.
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Exactly. Everything here is either trivial (ie diversification improves geometric returns) or not relevant to the real world (finding 50% daily vol assets and “pumping” them)
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No it's not. The most diversified portfolio it not the right portfolio to rebalance back to capture the full effect. Typically the most diversified portfolio should be held and not rebalanced freqently to increase returns.
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You’re gonna have to point me to some literature to convince me that there is anything here other than “risk parity works”. Not rebalancing a diversified portfolio is equivalent to a momentum tilt. Maybe that works but it’s a claim about the world, not an immutable fact.
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