Year-to-date the strategy is gaining 9.5% versus 3.9% for S&P 500 total return. Since the stock market correction started around October 3, 2018, the strategy is down 3.8% versus 6.1% for S&P 500 total return. Year-to-date, maximum drawdown for the strategy is 5.4% versus 9.7% for S&P 500 total return.
Our weekly mean-reversion strategy for Dow 30 stocks, DOWWMR, is based on a formula from probability theory that models price action dynamics. The strategy trades long-only Dow 30 stocks in the weekly timeframe with equal allocation. A maximum of 20 open positions are held at any given time. Positions are entered and exited at the open of the first day of the week. The strategy has a mechanism that avoids bear markets. Based on backtests, the strategy had only three down years since 2000. In 2008 the strategy was down -2.4%. Worse return was -3.1% in 2011 with maximum drawdown at -12.9%.
Below is the equity and maximum drawdown charts of the strategy ($0.01 per share commission) from 01/03/2000 to 11/16/2018:
Year-to-date, maximum drawdown of the strategy is -5.4% versus -9.7% for S&P 500 total return buy and hold. Below are YTD charts:
The DOWWMR strategy outperforms S&P 500 buy and hold on both absolute and risk-adjusted basis year-to-date.
We are cautiously optimistic about the future performance of this strategy because it is not data-mined but based on a sound hypothesis about price action dynamics and this is one reason it is included in our weekly Premium Signals report.
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Charting and backtesting program: Amibroker