This daily publication is intended to spark debate among traders, investors and academics, particularly

within the statistical arbitrage community. The portfolio is based on a simple premise: markets are
forward-looking, not backward-looking. Sometimes stock prices revert to some historical mean but more
often they don’t. In a normalized, shares-neutral portfolio, prices are generally mean-averse.

The graph shows the performance of two unconstrained long/short portfolios. One is designed to take
advantage of mean-reversion by its components and the other of mean-aversion. Time is noted in days.

The results depicted in the graph are for no-leverage portfolios. Long and short positions, determined
using a form of the Kelly criterion as modified by Thorp, are fully-collateralized (100% margin). Positions
are adjusted weekly to maximize productivity and to minimize slippage and transaction costs. Returns
are not compounded.
Link to spreadsheet from Scribd.com: DJ 30 Long-short Spreadsheet

DJ 30 Long/short Portfolio
(Shares per $1M)

11/12/09 11/13/09
Long/short 50% limit Symbol Long/short 50% limit
13.20 64 62 AA 13.18 -114 -109
39.50 3231 3157 AXP 40.35 3270 3114
50.28 -595 -581 BA 50.68 -494 -471
16.06 155 152 BAC 15.98 -141 -134
58.57 2124 2075 CAT 58.78 1893 1803
23.40 -419 -409 CSCO 23.71 -165 -157
77.42 -453 -442 CVX 77.94 -388 -369
33.87 312 305 DD 34.31 451 429
29.05 223 218 DIS 30.44 1219 1161
15.75 162 159 GE 15.66 -178 -170
27.24 -404 -395 HD 27.34 -478 -455
49.70 779 761 HPQ 49.91 651 620
126.26 104 102 IBM 127.03 79 75
19.68 -248 -243 INTC 19.82 -219 -208
61.15 -1052 -1028 JNJ 61.43 -1015 -967
43.30 -391 -382 JPM 42.90 -700 -667
26.84 -1552 -1516 KFT 26.91 -1503 -1432
55.94 190 186 KO 56.46 228 217
62.17 -328 -320 MCD 63.58 98 93
77.21 395 386 MMM 77.32 240 229
32.98 -187 -183 MRK 33.10 -230 -219
29.36 1770 1729 MSFT 29.63 1638 1560
17.62 -144 -141 PFE 17.59 -354 -338
61.30 -65 -63 PG 61.61 -90 -86
26.29 -1244 -1216 T 26.25 -1335 -1272
53.14 695 679 TRV 53.28 539 514
66.70 822 804 UTX 67.99 1055 1005
30.16 -1506 -1472 VZ 30.13 -1569 -1494
53.24 -638 -624 WMT 53.20 -811 -772
71.90 -1801 -1759 XOM 72.47 -1576 -1501
10197.47 $22,958 DJI 10270.47 $47,605