Category: Relative Strength
Jan 11, 2018
in Relative Strength, Video
A short video using the Advanced RS Pro backtest to look at how you can model the effect of Advisor-level fees over long periods of time.
to expand, click the '4 expanding arrows' icon in the bottom right corner of the video screen
Dec 05, 2017
in Relative Strength, Video
A short video using the Advanced RS Pro backtest to look at how mixing strategies together performed during the 2000-2002 and 2008 bear markets..
to expand, click the '4 expanding arrows' icon in the bottom right corner of the video screen
Sep 14, 2016
in Relative Strength
Why does your Relative Strength ranking of ETFs, work better than ranking them using the Sharpe Ratio?
The ETFreplay Relative Strength ranking methodology has the Sharpe Ratio concept at its core but it also reflects some more modern financial modelling methodologies.
So the Sharpe Ratio has volatility in the denominator. The thing about this is that the Sharpe Ratio effectively overrates very low volatility ETFs. In reality, investors value returns more than they do extreme low volatility. For example, a 12% return with 8% volatility is viewed much more positively than an 8% return with 4% volatility. That move from 8% down to 4% is not nearly as meaningful as the return differential. What investors really want is a solid return with acceptable volatility. Investors can tolerate some level of drawdown with a long-term focus -- just not large drawdowns.
Another thing we did was enable the user to use 2 timeframes for return. The reason is that it is well-accepted that a model can have up to 3 factors as the factors can help each other out. More than 3 factors starts to run into data-mining, which is something we need to be careful of.
Sometimes 1 factor which backtests well over longer time periods can have a rough patch. Another factor can help mitigate the problems and by using 2 return periods, we are not overly reliant on a single return factor.
Hope that helps and let us know if you have any other questions or comments.
See also our FAQ's for common questions
Sep 28, 2015
in Relative Strength
Approaching month / quarter end, none of the major asset classes are showing any strength relative to cash.
The only market with any shorter-term upside momentum (see Return B above) are U.S. Long Term Treasuries. For the bull case, TLT needs to hold above the June low. Failure to do so would turn the trend down.
Despite the recent sell-off in U.S. equities, the relative weakness of foreign stocks continues. We have been monitoring this for potential trend change, but there are no signs of that yet.
The usual caveats:
- This is a short example of the type of the analysis we do to assess market structure in order to take tactical positions. We favor diversification at the strategy level and any tactical positions form just a part of the whole.
- Probabilities play out in the long run, in the short term anything can happen.
- In no way should any of the above be considered investment advice.
Dec 11, 2014
in Relative Strength
User Question:
I run a portfolio relative strength backtest with 5 ETF but all are assigned an equal weight of 20%. How can I assign different weights to the ranked ETFs? Example: Top 5 Weighted as 30%, 30%, 20%, 10%, 10% respectively."
Answer:
For this you would use the Advanced Relative Strength Backtest (subscriber link).
By layering the strategies using different numbers of selections while at the same time using the same ETF list, you can create weightings based on Rank.
Note that the top two ranked securities in this portfolio list would each receive 10% from portfolio I, 10% from portfolio II and 10% from portfolio III. The backtest report combines weights and it becomes simply 30% for each of the two top ranked ETFs. Similarly, the 3rd ranked ETF received 10% from Portfolio II and 10% from portfolio III; making 20% in total. The 4th and 5th ranked ETFs are allocated 10% each by portfolio III.
Dive into the backtest report to see all the breakdown of sub-periods and the weightings of each ETF and its contribution to return for that period.
