ETF6RW is a new strategy in the weekly timeframe that will be included in Market Signals reports next year.
The strategy invests in top three from a group of six ETFs based on a rank function. Rebalancing occurs on a weekly basis when required. Below is the backtest of the strategy from 01/03/2007 to 20/28/2020. We use the same rank function we have used before in similar strategies without any optimization. Only the mix of securities has changed to offer better diversification.
Annualized return is 9.4% in the backtest period while maximum drawdown is 11.5% in the daily timeframe. Sharpe is close to 1.
We are thinking of leveraging this strategy 2× and the backtest with the leverage is shown below.
The leveraged annualized return is about 18%, maximum drawdown is 18% and Sharpe remains near 1.
The strategy will be included in weekly Market Signals report next year. We also plan to introduce additional strategies to replace a few of the existing ones.
We are probably going to move away from price series momentum and trend-following completely. This style poses high tail risks, as also confirmed earlier this year. Although robust trend-following strategies recover losses over the medium to longer-term, recovery periods are usually long and the performance of an ensemble of strategies that includes different styles is impacted. Going forward, we will focus on strategies that are either long/short or inherently diversified. We may keep one or two mean-reversion strategies because of their high mathematical expectation during bear markets.
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Charting and backtesting program: Amibroker
Data provider: Norgate Data
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