sohailmithani
192 posts
msg #112095
- Ignore sohailmithani
modified |
3/7/2013 9:16:41 AM
How has this strategy performed overall so far (since 2002). Backtest results please.
Thanks
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Kevin_in_GA
4,599 posts
msg #112096
- Ignore Kevin_in_GA |
3/7/2013 10:06:35 AM
Sohail: Please review the thread more closely - there is a lot of backtesting data I have posted here if you look.
Example:
6/2/2010 11:33:07 AM
Some more backtesting data ...
I downloaded the 3 month T-bill yields going back to 2003, and used them to generate a more accurate Sharpe ratio (which if you remember from my first post in this thread subtracts the "risk-free" rate of return from the ETF return prior to dividing by the ETF volatility).
Given that the risk-free rate of return has varied from over 5.25% in 2006 to as low as 0.00% in late 2009, it makes sense to use real data where possible. SF does not provide access to this data set, so for now I am manually assigning a value for the RFR of 0.14 (latest data from end of April). I wish we could get this as an index that could be referenced and dynamically updated.
Note that this does not change the relative strength rankings, as this value is subtracted from both sides before any comparison is made.
The above filter lets you see both the RS and Sharpe ratio (the risk-adjusted return) for the 21 day and 63 day timeframes. Obvious question - is a shorter timeframe more responseive, and do the risk-adjusted returns do as well as the "pure" performance plays?
The following data was manually generated using the T-bill yields in Excel. Rebalancing period is monthly, on the last trading day of each month.
63 day RS - 252.5% return since 7/31/2003
63 day Sharpe - 73.4% return since 7/31/2003
21 day RS - 124.0% return since 7/31/2003
21 day Sharpe - 46.1% return since 7/31/2003
SPY performance - 35.2% return since 7/31/2003
I also looked at only holding the selected ETF if it is above the 200 DMA - sell if it crosses below at the close on the day of the cross, and do not buy (stay in cash) for the month if on the rebalancing date the top ranked ETF is below its 200 DMA.
The effect for this approach is minimal - essentially no impact on the 63 day returns, and a decent improvement on the 21 day returns but not enough to make this a part of the strategy.
The 63 day RS approach has consistently been the winner, using both the ETFs since their inception dates, and the underlying index data going back through 1996. There are minor differences in the values generated, but the superior performance of this approach over buy-and-hold or a balanced portfolio of these ETFs is compelling.
My original thesis of this thread (that a risk-adjusted investment strategy based on Sharpe ratios is best) is slowly but inexorably being disproven by my own backtesting. If one is comfortable with some higher drawdown risk, the use of RS and ETF rotation can be a very effective investment strategy, and is well suited for managing things like TSPs or 401ks.
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duke56468
683 posts
msg #112098
- Ignore duke56468 |
3/7/2013 10:28:36 AM
Am I right that the switch to IWM should have occured Feb 1 and you should be in IWM at $89.96?
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Kevin_in_GA
4,599 posts
msg #112099
- Ignore Kevin_in_GA |
3/7/2013 10:54:52 AM
Depends on which filter you are using - the standard three month lookback had you shift from EFA to IWM on March 1. The hybrid 3 + 1 filter had this happen on Feb 1.
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Kevin_in_GA
4,599 posts
msg #112513
- Ignore Kevin_in_GA |
3/29/2013 1:49:38 PM
End of the month - the 3 month TAA lookback system clearly indicates to stay in IWM for April.
Honestly, this has been the case as well in 2012 and 2011 with a loss taken both years. Given the gains made YTD in the markets, I think there might be a pullout ahead of May as we saw in the past two years. Nonetheless, I'll follow the system and cross my fingers that the markets don't get too crazy.
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Xglassm
5 posts
msg #112554
- Ignore Xglassm |
3/31/2013 11:58:17 PM
UNG and XLV are looking pretty nice too.
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Xglassm
5 posts
msg #113092
- Ignore Xglassm |
5/2/2013 2:06:36 PM
Hey do you all think that shorting this filter by the same rules while incorporating plenty of the larger ETFs into the mix might be a good idea? I was intrigued by the higher scores (in terms of absolute value) that some ETFs have (e.g. SLV, UVXY).
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Kevin_in_GA
4,599 posts
msg #113093
- Ignore Kevin_in_GA |
5/2/2013 3:23:06 PM
I honestly have no idea what you are talking about. Add etfs and then short them would be nothing like what I have presented here, but you are welcome to start a new thread to test your ideas.
The TAA signal for May is to move to SPY. What I have noticed is that every May the system says to stay long equities and gets burned. I personally moved 100% into a stable value position in my investment accounts on 4/30. I might miss some upside by doing this, but am willing to take that type of risk versus the loss of actual capital.
Kevin
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sohailmithani
192 posts
msg #113135
- Ignore sohailmithani |
5/5/2013 11:00:05 AM
Hi Kevin,
Would you be able to please share the stratasearch code for the TAA system. I am trying to match your results.
Thanks
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dtatu
143 posts
msg #113136
- Ignore dtatu |
5/5/2013 1:39:24 PM
Kevin, I can understand your decision to move into cash or in a low risk income instrument, but,this is not a decision based on a systematic, objective signal, but rather a more or less subjective one, based on some previous May results.
Then, why use a system if you do not follow it anyways?
At least, if you think there is a "seasonal" behaviour to your system, why not test it and, if positive results come out of it, trade it only seasonally?
Dan
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