A long-short mean-reversion strategy for trading a portfolio consisting of SPY, QQQ, and TLT ETFs. Updated December 30, 2022.
For all backtests in this article we used Norgate data. We highly recommend this data service (we do not have a referral arrangement with the company.)
Timeframe: Daily (adjusted data)
Markets: SPY, QQQ, TLT
Strategy type: Long-short mean-reversion
Maximum positions: 3
Position size: equity/3
All trades are executed at the open of the next bar
Backtest range: 01/2/2003 –12/30/2022
The strategy is not optimized for the highest annualized return.
Equity curve (green) and comparison to SPY total return (orange)
|STRATEGY||SPY BUY AND HOLD|
|AVG. BARS IN TRADE||8.2||–|
The strategy CAGR is 6% versus 7.9% for buy and hold. The maximum drawdown of the strategy is 15.2% versus 55.2% for buy and hold. The Sharpe of the strategy is 0.63 versus 0.40 for buy and hold. The volatility of the strategy is half of that of buy and hold: 9.5% versus 19.5%. The average holding period is 8.2 days. The win rate is 67.6%.
Two ETF positions may also be held. In this case, the CAGR increases but also the maximum drawdown and the volatility increase.
There have been six down years in the test period, with 2004 down the most at -5%. In 2008 the strategy was up 7.5% and in 2022 gained 17%.
The strategy rules are available for sale. Contact us for details.
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.
Charting and backtesting program: Amibroker. Data provider: Norgate Data