The strategy trades all Dow 30 stocks in short-term mean-reversion mode using as a score a formula from a probability theory textbook.
Updated: June 13, 2019
The strategy goes long-only Dow 30 stocks and uses as score our proprietary PSI5 algo, which is based on a formula from a text in probability theory. The logic of this strategy is available for sale to professional traders and hedge funds subject to acceptance of a non-disclosure agreement.
A maximum of 30 open positions are held at a time. The strategy shows superior absolute and risk-adjusted returns in backtest mode. Note that this is not a data-mined strategy but it is based instead on a mathematical model of stock price action. No leverage in used in the results.
Portfolio backtest settings
Time-frame: Daily (adjusted data)
Strategy type: Mean-reversion, long-only
Score based on: PSI5
Market correction filter: None (all signals taken even during corrections)
Universe: Dow 30 stocks
Backtest period: 01/03/2000 – 06/13/2019
Maximum open positions: 30
Commission per share: $0.01
Position size per stock: Available equity/30
Trade entry: Open of next bar (no look-ahead bias)
|Parameter||MRDOW||Buy and hold|
|Avg. bars in Trade||6.7||–|
The strategy shows 0.34 MAR (CAR/Max. DD) versus 0.10 for SPY total return buy and hold and clearly outperforms the benchmark on a risk-adjusted basis but also in absolute returns terms. The strategy gained 3.1% in 2008 and +15.2% in 2011. There were only two losing years and largest loss was -3.7% in 2002.
Backtest results (Click on image to enlarge.)
This strategy is available for sale to hedge funds and professional traders. Click here for the strategy section.
If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY
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.
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