Nico brought to my attention the 130/30: The New Long-Only (2008) by A. Lo, P. Patel paper in his comment to the Multiple Factor Model – Building CSFB Factors post. This paper presents a very detailed step by step guide to building 130/30 Index using average CSFB Factors as the alpha model and MSCI ... [Read more...]

This is a quick post to address comments raised in the Time Series Matching post. I will show a very simple example of backtesting a Time Series Matching strategy using a distance weighted prediction. I have to warn you, the strategy’s performance is worse then the Buy and Hold. ... [Read more...]

Frank Hassler at Engineering Returns blog wrote an excellent article Rotational Trading: how to reduce trades and improve returns. The article presents four methods to reduce trades: Trade less frequently. I.e. weekly instead of daily rebalancing. Different criteria for enter / exit a trade. Smooth the rank over the last ... [Read more...]

I wrote about Rebalancing in the Asset Allocation Process Summary post. Deciding how and when to rebalance (update the portfolio to the target mix) is one of the critical steps in the Asset Allocation Process. I want to study the portfolio performance and turnover for the following Rebalancing methods: Periodic ... [Read more...]

I want to show how to combine various risk measures I discussed while writing the series of posts about Asset Allocation with backtesting library in the Systematic Investor Toolbox. I will use Minimum Variance portfolio as an example for this post. I recommend reading a good discussion about Minimum Variance ... [Read more...]

The end of the month effect was examined by MarketSci in the The Last Day of the Month Blahs post. The idea is simple: buy on the last day of the month and sell a few days later. This idea was put into a strategy by Quanting Dutchman in the ... [Read more...]

I want to discuss the implementation of Rotational Trading Strategies using the backtesting library in the Systematic Investor Toolbox.The Rotational Trading strategy switches investment allocations throughout the time, betting on few top ranked assets. For example, the ranking can be based on relative strength or momentum. A few examples ... [Read more...]

I want to illustrate Backtesting with Short positions using an interesting strategy introduced by Woodshedder in the Simple, Long-Term Indicator Near to Giving Short Signal post. This strategy was also analyzed in details by MarketSci in Woodshedder’s Long-Term Indicator post. The strategy uses the 5 day rate of change (ROC5) ... [Read more...]

When designing a trading strategy, I want to make sure that small changes in the strategy parameters will not transform the profitable strategy into the loosing one. I will study the strategy robustness and profitability under different parameter scenarios using a sample strategy presented by David Varadi in the Improving ... [Read more...]

I wrote a simple Backtesting library to evaluate and analyze Trading Strategies. I will use this library to present the performance of trading strategies that I will study in the next series of posts. It is very easy to write a simple Backtesting routine in R, for example: The code ... [Read more...]

Rob Hyndman has a great post on his blog with example on how to cross-validate a time series model.  The basic concept is simple:  You start with a minimum number of observations (k), and fit a model (e.g. an arima model) to those observation... [Read more...]

Note: This post is NOT financial advice!  This is just a fun way to explore some of the capabilities R has for importing and manipulating data.   In part 2, we found that our 200-day high, hold 100 days strategy yielded average annual return... [Read more...]

Note: This post is NOT financial advice!  This is just a fun way to explore some of the capabilities R has for importing and manipulating data.   In my last post, I demonstrated how to backtest a simple momentum-based stock trading strategy ... [Read more...]

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