I have monthly stock returns I want to invest in according to my trading signals. Now I want to figure out the optimal holding period of the long-short-positions. (The same time for both positions).
I invest one unit long and one short. For a holding period of one month I just substract the returns from the short-portfolio of the ones from the long-portfolio and multiply the mean of all of them by 12 for the annual return.
My questions concern the longer holding periods, let's say it is two months. First I have to multiply the return of
t=0 with the return of
Do I then invest the dollar every month or do I invest it only every other month so I never invest more than my initial one dollar at a time? (For a holding period of
x then every
Or would I only invest 1/2 dollars every month so I don't exceed one dollar at a time? (
1/x dollars for
x months of holding.)
And do I have to consider anything else for the return calculation afterwards?