Framework for capital allocation
In this resource starved world, capital is scarce. Every dollar that you own has its place and deserves to be allocated properly.
Currently, I already have a huge chunk of capital tied up in a diversified portfolio levered up to 1.4 times. Portfolio has (& expected to) outperformed/ matched up to market returns with 2 to 3 times lower risk - in terms of standard deviation and drawdown.
But going forward, if I discover a strategy that exhibits appealing characteristics (e.g reasonably high returns with low or inverse correlation to broad markets, crisis alpha), how do I allocate capital to this strategy without increasing my leverage?
To answer this question, I developed a framework that I will adopt for each strategy.