We compare the results of two strategies for FAANG stocks, a long/short based on features engineered by DLPAL LS software and a long or short based on the 50/200 moving average cross.
The long/short equity strategy for FAANG stocks based on DLPAL LS features was described in this article. The strategy based on the golden cross holds up to 5 stocks, each long or short, depending on whether the 50 day moving average is above or below the 200-day moving average. Below are the equity curves, the one on the left is the DLPAL LS long/short and the one on the right the golden cross strategy.
Strategy performance (01/04/2016 – 03/09/2018) Included $0.01 per share commission.
|Parameter||DLPAL SL||50/200 cross||Buy and hold*|
* Based on equal allocation of 20% at start of the backtest period. There is no rebalancing.
It may be seen that the DLPAL LS strategy returned 19.2% in 2016 but the golden cross strategy return was -4.7%. The buy and hold was less than DLPAL LS at 11.8%.
In hindsight, the choice of the strategy depends on objectives. For individual traders the golden cross strategy is more appealing with a higher return than the DLPAL strategy but probably for hedge funds managers avoiding a negative year is preferable to higher returns. Note that the golden cross is not long/short but long and short depending on market conditions and risks are higher because all open positions may be aligned before a market reversal. This is not the case with the DLPAL LS strategy that holds two long and two short stocks at any given time.
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