Your basic idea is sound but numbers are off. There is a maximum amount of diversification you can achieve with a fully-invested equity portfolio. If you hold the "market portfolio", e.g., S&P500, then you will still have at least 16% standard deviation. Note you actual fluctuations might be 1 or 2 standard deviations below expectation. The historically lucky return on the market has been around 8% above Treasury bills since 1926. That gives you optimistically an information (Sharpe) ratio of 8%/16% = .5. That's pretty good; with a normal distribution it would give you a 69% chance of beating the Treasury bills each year. I've been levered for years, and the 90's were great for me. Certainly levering the market gets you more compensation for risk than most active investment managers.


But margin doesn't change the information ratio or increase your chances of winning, it merely amplifies the risk and return. In other words do you want an 8% return premium with fluctations (around T-bills) between -24% and 40%, or do you want a levered return premium of 16% with fluctations between -40% and 72%? Frankly it sounds like you would prefer a balanced fund with a return premium of 4% and fluctuations between -8% and 20%.


Over time your probability of "winning" will increase with reasonably conservative strategies. But with a proportional investment strategy your compound return will lie below the average return by around half the variance, around 2% for a fully invested strategy.


The initial equity margin requirement is 50%, but you can get more leverage with index options and futures (I doubt you want it).