The long-short mean-reversion strategy for trading a portfolio consisting of SPY, QQQ, and TLT ETFs is based on price breakouts. Update: September 27, 2022.
The long-short variant of the price breakout strategy is based on the MRETF strategy included in this article. The same parameters were used and there was no optimization for the long-short part.
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 –09/27/2022
The strategy is not optimized for the highest annualized return.
Equity curve and comparison to SPY total return
|STRATEGY||SPY BUY AND HOLD|
|AVG. BARS IN TRADE||8.2||–|
The strategy CAGR is 5.3% versus 9.4% 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 0.56 versus 0.49 for buy and hold. The volatility of the strategy is less than half of that of buy and hold: 9.3% versus 19%. The average holding period is 8.2 days. The win rate is 67.3%.
There have been four down years in the test period, with 2005 down the most at -4.1%. In 2008 the strategy was up 6.7% and year-to-date it is up about 5.8%.
Two ETF positions may also be held. In this case, the CAGR increases but also the maximum drawdown and the volatility increase.
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