The performance of this strategy can serve as a benchmark for long-only equity strategy development.
The benchmark strategy is the 12-month simple moving average rule applied to SPY. The strategy buys SPY when price crosses above the average and sells when it crosses below the average.
Below is the performance since 1995 as generated by Portfolio Visualizer:
CAGR is 11.45% but the important parameter is the maximum drawdown at -16.63% and the Sharpe ratio of 0.93. The MAR ratio (CAGR/Max. DD) is 0.70. Any long-only equity strategy that generates higher drawdown is inferior unless the MAR ratio is higher than 0.70.
In addition note that the correlation of this momentum strategy with the market is 0.68. A long-only strategy with correlation to the market above 0.90 has probably a performance that is statistically indistinguishable from buy and hold.
Furthermore, the worst year is -4.25%. This is another parameter to consider when evaluating strategies against this benchmark.
This benchmark is hard to beat with long-only strategies trading equities. Our long-only Fluxionization™ and MRDOW strategies come close. These strategies are not data mined but are based on unique hypotheses about price action behavior. For more details click here.
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