Dow 30 Weekly Mean-Reversion Strategy

We apply the PSI5 mean-reversion algo to Dow 30 stocks in the weekly timeframe. Since 2000 the strategy has outperformed S&P 500 total return on both absolute and risk-adjusted basis with and without a stop-loss.

Weekly mean-reversion signals for Dow 30 stocks are no included in Weekly Signals and in our Weekly Market Analysis.

With only one parameter adjustment in the PSI5 algo we use for daily mean-reversion with Dow 30 stocks we applied it in the weekly timeframe. Below are the results for all 30 Dow stocks with a 2% stop-loss and without it.

Portfolio backtest settings

Time-frame: weekly (adjusted data)
Strategy type: Mean-reversion, long-only
Score based on: PSI5
Universe: Dow30 stocks (current composition)
Backtest period: 01/03/2000 – 10/25/2017
Maximum open positions: 20
Commission per share: $0.01
Position size per stock: Available equity/20
Trade entry: Open of next bar after entry signal (no look-ahead bias)
Trade exit: Open of next bar after exit signal or 2% stop-loss (no look-ahead bias)

Performance summary

In the results below we compare the performance of the weekly strategy without and with stop-loss to buy and hold and also to daily mean-reversion based on PSI5

Parameter No stop-loss 2% stop-loss SPY B&H Daily
CAGR 9.29% 7.12% 5.15% 7.51%
Max. DD -34.4% -24.4% -55.2% -19.8%
Sharpe 0.46 0.43 0.26 0.59
MAR 0.27 0.29 0.09 0.37
Win rate 66.8% 61.7% 66.8%
Trades 6275 6638 11028
Avg. Trade 0.55% 0.40% 0.36%
Avg. bars 2.86 2.36 6.69
Profit factor 1.51 1.30 1.39

Note that the strategy without stop-loss was down 11.7% in 2008 and without stop-loss it was down 4.2%. Drawdown can only be decreased without curve-fitting by switching to daily timeframe. The daily strategy gained 4.6% in 2008.

Below are the equity curve, monthly returns and Monte Carlo simulation for the weekly strategy without stop-loss.

The probability of a drawdown greater than 14% is less than 1%.

Below are the equity curve, monthly returns and Monte Carlo simulation for the weekly strategy with 2% stop-loss.

The probability of a drawdown greater than 13.5% is less than 1%.

Below are the equity curve, monthly returns and Monte Carlo simulation for the daily strategy without stop-loss.

The probability of a drawdown greater than 7.5% is less than 1%.

The signals of the weekly mean-reversion strategy are included in our Weekly Market Analysis. Click here for a sample report and weekly mean-reversion signals at the end.

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

Copyright notice: Any unauthorized copy, reproduction, distribution, publication, display, modification, or transmission of any part of this report is strictly prohibited without prior written permission.

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