voidcomp
23 posts
msg #112062
- Ignore voidcomp |
3/5/2013 10:49:20 AM
Your revision more closely aligns to the default ETFReplay model.
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Kevin_in_GA
4,599 posts
msg #112064
- Ignore Kevin_in_GA |
3/5/2013 11:38:39 AM
Yes, except they also incorporate volatility, so the results are different (but aligned, as you had indicated). If you have an ETFreplay account, can you compare these two setting volatility to zero for both? I would like to see how the two variations compare in their backtesting.
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blumberg
27 posts
msg #112071
- Ignore blumberg |
3/5/2013 7:55:35 PM
IWM broke out of a massive cup and handle on a weekly time frame back in December. It's been on a tear ever since. The future looks very bright for the US stock market, especially for smaller companies.
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sohailmithani
192 posts
msg #112080
- Ignore sohailmithani |
3/6/2013 11:42:56 AM
Hi Kevin
Can you please let me know which page can I see the results of the current startegy that you are using? Is it page 7?
Thanks
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Kevin_in_GA
4,599 posts
msg #112081
- Ignore Kevin_in_GA |
3/6/2013 12:24:05 PM
The standard is a 3 month lookback, but since we cannot get SF to provide monthly data the simplest approach is to simply use an offset, and change it each month:
To make it simple, this is the filter we used for March, run on the last day in February:
and through this month you use the following (and on 3/29 look at who is in the lead and invest accordingly):
Just use the last column to see the performance of each asset class, and stay with the leader. If you want to use the 1 month + 3 month hybrid filter, it is listed above. Both point to IWM for March.
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voidcomp
23 posts
msg #112082
- Ignore voidcomp |
3/6/2013 1:14:10 PM
Yes, ETFReplay can set volatility to 0 and weight either of the 2 time periods to whatever.
I'll make a brief plug (I have no financial interest) in saying my initial interest in subscribing was the easy way in which it takes the best aspects of the momentum strategy in a way which requires no coding. It's really a top flight analysis tool especially suited to risk adverse, longer term investors.
You discover that the easiest way to minimize drawdown and keep trading to a minimum is to keep your 'universe' of ETF's conservative with a hefty dose of total allocation heavily weighted to short or intermediate term bond/reverse-bond//market neutral ETF's. I sometimes get the impression on this forum that some love the returns but can't put up with the volatility. Go figure :)
What makes it especially powerful is the optional added criteria that even the top performer(s) must be above some moving average to pass muster for purchase. This avoids purchasing the 'best of the worst' scenario where everything is tanking.
As you can imagine most of the conservative strategies have greatly underperformed the broad market this year ... as it should.
Finally, one of the most overlooked strategy modules within ETFReplay (which also happens to be the simplest) is their 'Ratio MA' backtest which divides one ETF by another, then throws a moving average (or 2 moving average) on the chart to tell you which one to be in.
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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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