Category Archives for "Research"
Recently I have been researching longer term hold strategies. I wondered which indicators by themselves would show an edge 3 to 6 months out. I am not looking to create a strategy from the indicator alone but want to know is there a statistical edge with it. Naturally, I started with my favorite Relative Strength Index, RSI.
Two years ago, I wrote an article, The issues with back testing a short stock strategy, about my short strategy and the issues I had with short backtests and shorting. Soon after publishing that article, I stopped trading my short strategy. I like to retest strategies 2 to 3 years after I stop trading them. I will admit that I do not do this with all my strategies because I forget to do so. I am looking to see how the strategy has performed since then and if the reasons I stopped have changed. Maybe it is time to start trading it again. The current market conditions and the fact that I wrote about this strategy gave me the push to remember to do it. So how has my short strategy held up since I stopped?
I recently gave a presentation on Better System Trader about using stops on a breakout strategy. The research produced results I was not expecting and may be surprising to you. The stops tested are
A reader recently asked how to do equity curve correlation. For detailed information on correlation you can read Correlation and dependence or for simpler explanation read Correlation at Math is Fun. For steps on how to do this in Excel, which is where of course I did it, read Correlation at Excel Easy. I will cover here how one can correlation analysis between equity curves.
My previous post The Health of Stock Mean Reversion: Dead, Dying or Doing Just Fine generated good reader’s suggestions on other ways to check on mean reversion health. Let us see what these tests tell us.
Wow, what a tough week. But how unusual has this move been? I had a couple of readers send in some ideas to test. These are always fun tests to do when the market goes crazy but usually they don’t provide enough data points to act upon.
My second post on this blog was a look at mean reversion, Is mean reversion dead? Given I am using a new data provider(Premium Data), it has been almost two years since that post and there have been other articles on this recently, I figured it was time to check again. The research will focus on Russell 1000 stocks since 1995. The test is back to 1995 covers 3 bull markets and 2 bear markets.
We hear it all the time. “You must use stops.” And most of us use them. But do you know how they change your strategy results? Are they improving your results by giving you higher CAR or lower maximum drawdown? Recently I was speaking with a reader about this topic and he insisted that it you had to have stops to trade. Well, does one?
A popular topic lately has been “Smart beta” ETFs. What is smart beta? It is using different ways to weight an index and the ETF that tracks it. For example, the S&P500 index is a capitalization weighted index. Bigger companies have a larger portion of the index. If you look at the SPY, Apple which is the largest company, accounts for 4% of the index (https://www.spdrs.com/product/fund.seam?ticker=spy). Other ways one can weight an index are equal weight, by volatility, by fundamental measures, by technical measures and so on. Why would you do this? To beat the returns of the S&P500 index . But are these other ways better?
David Weilmuenster is today’s guest author. David and I worked together at Connors Research for eight years and is one great researcher and AmiBroker programmer.
Brochures for professionally managed investments and academic white papers on long term investing almost always praise the benefits of regularly re-balancing a portfolio. The benefits can arise from the interaction, or correlation, of periodic returns among the constituent assets in a portfolio. As the correlations among constituent assets decrease, the long term returns of the overall portfolio generally will increase with regular re-balancing. This has become known as “the only free lunch in investing”, although it does not work out that way in all situations.