The PSI5 mean-reversion strategy has outperformed the buy and hold performance of SPY total return since the bottom of the financial crisis on a risk-adjusted basis.
The PSI5 (MR5) proprietary strategy is included in our mean-reversion signal service with same parameters. Note that this is not a data-mined strategy but based on a mathematical model of stock price action from a text on probability theory.
Specifically, Sharpe for the PSI5 strategy in the tested period is 1.23 versus 1.17 for buy and hold total return. Note that exposure is less that 40%.
PSI5 strategy (MR5)
Time-frame: Daily (adjusted data)
Strategy type: Long-only
Backtest period: 03/06/2009 – 08/15/2017
Commission per share: $0.01
Position size: Fully invested
Position entry and exit: Open of next bar
|Parameter||Strategy||Buy and Hold|
|Avg. bars in trades||5.9||–|
Equity curves for buy and hold (top) and PSI5 strategy (bottom)
Below are the drawdown chart and monthly returns table.
Note that PSI5 returned 25% annualized from 03/06/2009 to the end of that year. However, the net return for 2009 was 9%. The strategy also made 9% in 2008.
All charts were created with Amibroker – advanced charting and technical analysis software. http://www.amibroker.com