The strategy trades all Dow30 stocks in short-term mean-reversion mode using as a score a formula from a probability theory textbook.
The strategy is long-only and uses as score our proprietary PSI5 algo that is based on a formula found in probability theory text. A maximum of 15 open positions are held at a time. The strategy shows superior absolute and risk-adjusted returns with no losing years since 2000 in backtest mode. Note that this is not a data-mined strategy but it is based on a mathematical model of stock price action.
Portfolio backtest settings
Time-frame: Daily (adjusted data)
Strategy type: Mean-reversion, long-only
Score based on: PSI5
Universe: Dow30 stocks (current composition)
Backtest period: 01/03/2000 – 04/12/2017
Maximum open positions: 15
Commission per share: $0.01
Position size per stock: Available equity/15
Trade entry: Open of next bar (no look-ahead bias)
|Parameter||PSI5||Buy and hold|
|Avg. bars in Trade||6.7||–|
The strategy has 0.37 MAR (CAR/Max. DD) versus 0.09 for SPY total return buy and hold and clearly outperforms passive investing in SPY on a risk-adjusted basis but also in absolute returns terms. The strategy gained 8.3% in 2008 and has not have a down year in the backtest.
Performance curves (Click on images to enlarge.)
The strategy returned 8.3% in 2008 and 15.8% in 2011. There are no losing years.
According to the Monte Carlo simulation, the probability of a drawdown larger than 8% is only about 1%.
This strategy is available for sale to hedge funds and institutional traders. Click here for the strategy section.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
All charts were created with Amibroker – advanced charting and technical analysis software. http://www.amibroker.com
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