FAANG: DLPAL LS Long/Short Vs. Golden Cross Long or Short

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* 
Return 54.8% 72% 111.6%
Max. DD -11.6% -12.5% -13.61%
Sharpe 0.83 1.71 2.14
MAR 1.83 2.30 3.03
Trades 182 14 4
2016 19.2% -4.7% 11.8%
2017 16.2% 44.5% 49.2%
2018 YTD 9.6% 26.0% 26.7%

* 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.

More details about DLPAL LS can be found here. For more articles about DLPAL LS click here.

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