Performance Of the PSI5 Mean-Reversion Strategy Since The Financial Crisis Bottom

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
Market: SPY
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

Strategy performance

Parameter Strategy Buy and Hold
CAGR 14.04% 18.72%
Max. DD -14.1% -18.6%
Sharpe 1.23 1.17
MAR 1.01 1.00
Win rate 76.2%  –
Trades 172  –
Profit factor 2.64  –
Avg. bars in trades 5.9  –
Exposure 39.3% 100%

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.

Note that the author of this website is not a registered financial adviser. Strategy performance results are hypothetical. Please read the Disclaimer and Terms and Conditions.

All charts were created with Amibroker – advanced charting and technical analysis software. http://www.amibroker.com

This entry was posted in Trading Strategies and tagged , , , . Bookmark the permalink.

Leave a Reply