backtesting

Modeling Couch Potato strategy

October 25, 2012 | systematicinvestor

I first read about the Couch Potato strategy in the MoneySense magazine. I liked this simple strategy because it was easy to understand and easy to manage. The Couch Potato strategy is similar to the Permanent Portfolio strategy that I have analyzed previously. The Couch Potato strategy invests money in ... [Read more...]

Permanent Portfolio – Simple Tools

October 4, 2012 | systematicinvestor

I have previously described and back-tested the Permanent Portfolio strategy based on the series of posts at the GestaltU blog. Today I want to show how we can improve the Permanent Portfolio strategy perfromance using following simple tools: Volatility targeting Risk allocation Tactical market filter First, let’s load the ... [Read more...]

Minimum Correlation Algorithm Example

September 23, 2012 | systematicinvestor

Today I want to follow up with the Minimum Correlation Algorithm Paper post and show how to incorporate the Minimum Correlation Algorithm into your portfolio construction work flow and also explain why I like the Minimum Correlation Algorithm. First, let’s load the ETF’s data set used in the ... [Read more...]

Permanent Portfolio

September 17, 2012 | systematicinvestor

First, just a quick update: I’m moving the release date of the SIT package a few months down the road, probably in November. Now back to the post. Recently I came across a series of interesting posts about the Permanent Portfolio at the GestaltU blog. Today I want to ... [Read more...]

Extending Gold time series

September 10, 2012 | systematicinvestor

While back-testing trading strategies I want all assets to have long history. Unfortunately, sometimes there is no tradeable stock or ETF with sufficient history. For example, I might use GLD as a proxy for Gold allocation, but GLD is only began trading in November of 2004. We can extend the GLD’... [Read more...]

Adaptive Asset Allocation – Sensitivity Analysis

August 20, 2012 | systematicinvestor

Today I want to continue with Adaptive Asset Allocation theme and examine how the strategy results are sensitive to look-back parameters used for momentum and volatility computations. I will follow the sample steps that were outlined by David Varadi on the robustness of parameters of the Adaptive Asset Allocation algorithm ... [Read more...]

Adaptive Asset Allocation

August 13, 2012 | systematicinvestor

Today I want to highlight a whitepaper about Adaptive Asset Allocation by Butler, Philbrick and Gordillo and the discussion by David Varadi on the robustness of parameters of the Adaptive Asset Allocation algorithm. In this post I will follow the steps of the Adaptive Asset Allocation paper, and in the ... [Read more...]

1-Month Reversal Strategy

July 12, 2012 | systematicinvestor

Today I want to show a simple example of the 1-Month Reversal Strategy. Each month we will buy 20% of loosers and short sell 20% of winners from the S&P 500 index. The loosers and winners are measured by prior 1-Month returns. I will use this post to set the stage for ... [Read more...]

Example of Factor Attribution

July 3, 2012 | systematicinvestor

In the prior post, Factor Attribution 2, I have shown how Factor Attribution can be applied to decompose fund’s returns in to Market, Capitalization, and Value factors, the “three-factor model” of Fama and French. Today, I want to show you a different application of Factor Attribution. First, let’s run ... [Read more...]

Volatility Position Sizing 2

June 11, 2012 | systematicinvestor

I have discussed Volatility Position Sizing in the Volatility Position Sizing to improve Risk Adjusted Performance post using the Average True Range (ATR) as a measure of Volatility. Today I want show how to use historical volatility to adjust portfolio leverage. Let’s start with Buy and Hold strategy using ... [Read more...]

Volatility Quantiles

June 4, 2012 | systematicinvestor

Today I want to examine the performance of stocks in the S&P 500 grouped into Quantiles based on one year historical Volatility. The idea is very simple: each week we will form Volatility Quantiles portfolios by grouping stocks in the S&P 500 into Quantiles using one year historical Volatility. Next ... [Read more...]

Backtesting Classical Technical Patterns

May 28, 2012 | systematicinvestor

In the last post, Classical Technical Patterns, I discussed the algorithm and pattern definitions presented in the Foundations of Technical Analysis by A. Lo, H. Mamaysky, J. Wang (2000) paper. Today, I want to check how different patterns performed historically using SPY. I will follow the rolling window procedure discussed on ... [Read more...]

Intraday Backtest

April 22, 2012 | systematicinvestor

I came across a free source of Intraday Forex data while reading Forex Trading with R : Part 1 post. You can download either Daily or Hourly historical Forex data from the FXHISTORICALDATA.COM. The outline of this post: Download and Import Forex data Reference and Plot Intraday data Daily Backtest Intraday ... [Read more...]

Gini Efficient Frontier

March 23, 2012 | systematicinvestor

David Varadi have recently wrote two posts about Gini Coefficient: I Dream of Gini, and Mean-Gini Optimization. I want to show how to use Gini risk measure to construct efficient frontier and compare it with alternative risk measures I discussed previously. I will use Gini mean difference risk measure – the ... [Read more...]

Backtesting Asset Allocation portfolios

March 18, 2012 | systematicinvestor

In the last post, Portfolio Optimization: Specify constraints with GNU MathProg language, Paolo and MC raised a question: “How would you construct an equal risk contribution portfolio?” Unfortunately, this problem cannot be expressed as a Linear or Quadratic Programming problem. The outline for this post: I will show how Equal ... [Read more...]
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