Oct 08, 2024
in RS Composite
We have upgraded the Core-Satellite, Core-Regime RS and Advanced RS Pro backtests.
Core-Satellite backtest
Annual subscribers, both pro and regular, now have the option to switch between employing 3-factor Relative Strength or RS Composite on the Core-Satellite backtest.
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For more detail on the difference between the 3-factor Relative Strength model and RS Composite, see Relative Strength: 3 Factor vs Composite
Core-Regime RS and Advanced RS Pro
For Pro subscribers, the option to switch between 3-factor RS and RS Composite is now also available on both the Core-Regime RS and Advanced RS Pro backtests.
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Sep 12, 2024
in Backtest
The load and save settings function on all relevant backtests now displays the date that each of the settings were last loaded.
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The last loaded dates will initially be empty / blank, but will update, from now on, as and when you load the backtests.
The Load Settings function is straightforward to use. Simply click the ‘Load Settings’ button in the top right corner of the backtest and then:
- to load a backtest, click on its name
- to delete the settings, click 'Delete'
- to cancel / close the window, click the X in the top right corner or click the ‘Cancel’ button underneath the table
- to sort the table, click the column heading
To save your backtest settings:
- Click the ‘Save Settings’ button in the top right corner of the backtest
- Enter a new name for your settings, or, select a name from the table to overwrite existing settings
- Click ‘Save’
Regular subscribers can save up to 5 sets of settings per backtest. Pro subscribers can save up to 20 per backtest.
Jun 20, 2024
in Moving Average, Dashboards, Timeline
Q. "How can I check for moving average crossovers on the ETFs in my portfolio each month?”
A. To monitor a moving average model you can use either the Portfolio MA Timeline or set up a Dashboard.
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While the Timeline’s main graphic displays the invested history of each security in the portfolio, the far right column of the data table shows how near / far each ETF currently is from the chosen MA. As it gets closer to the end of the month, this can be used to estimate the likely positions for the following month. Clicking on the percentage value in that column will produce a pop-up window that displays a chart of the ETF and its moving average.
Alternatively, rather than using the Timeline, you can create a Dashboard and then add :
- MA List - displays the vs MA % for each ETF in your portfolio.
- MA Chart - vs MA % will be displayed on the chart
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See: Introducing Dashboards: A Way To Help Organize Workflow In Research & ETF Portfolio Backtesting
Notes:
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Moving Averages on ETFreplay are calculated using Total Return. i.e. the calculation does not just use closing prices but also accounts for the receipt and reinvestment of any dividends and distributions. The MA is then compared to the Total Return value of the ETF, so that it's like-vs-like; everything is Total Return, not just price. See the FAQ How are moving averages calculated?
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Timelines are also available for Portfolio Ratio MA and Channel models.
Apr 26, 2024
in Regime Change, RS Composite
We have added an RS Composite option to the Regime Relative Strength backtest.
Annual subscribers (both pro and regular) can now switch from using regular 3-factor RS models to RS Composite models by turning on the RS Composite option.
click image to view full size version
For more detail on the difference between the 3-factor Relative Strength model and RS Composite, see Relative Strength: 3 Factor vs Composite
Go to the Regime Relative Strength backtest
Apr 25, 2024
in Relative Strength, RS Composite
The range of Relative Strength tools and backtests on ETFreplay come in two varieties: 3 Factor and Composite.
3 Factor Relative Strength
The Relative Strength (RS) model employed by the Screener, RS Reader and the majority of RS backtests is loosely based on the Sharpe Ratio, which measures return per unit of risk. However, while the Sharpe Ratio effectively equally weights the time period for return and volatility, the RS model takes the Sharpe Ratio concept and decomposes it into three separate factors:
- ReturnA - Higher timeframe total return
- ReturnB - Lower timeframe total return
- Volatility
Volatility is a measure of risk and is the annualized standard deviation of daily returns over the specified lookback period. Risk is uncertainty and the larger the range of possible outcomes, the higher the volatility will be and therefore the greater the risk. Consequently, unlike returns, it is ranked low to high. Therefore, the greater the weight assigned to volatility, the more volatile ETFs are penalized. 1
From these three factors, and the weights assigned to them, the overall rank is calculated. The precise process is fully explained in How The Screener Works.
Both the lookback periods and the weight of each factor can be changed. For example, to rank the ETFs by only 6-month total return, set Return A to '6-Months' and set its weight to 100% (and the weights of ReturnB and Volatility to zero).
As with most models, the shorter the lookback periods chosen, the more responsive to changes the RS model will be. However, this also means that it is more likely to be whipsawed by noise and will have a higher trade frequency. A balance must therefore be struck. If a model proves to be too busy with a particular list, then longer looback periods should be employed to get above the noise (or greater weight assigned to the higher timeframe).
i.e. A model using 6-month ReturnA and 3-month ReturnB will produce less trades than 3-Month and 20-day etc.
The performance of a model can be evaluated using one of the various Relative Strength backtests and the Parameter Performance Summary makes it possible to test numerous different parameter combinations in one go. 2
Relative Strength Composite
The RS Composite model is designed to protect against the possibility of parameter choice misfortune, which can arise when relying on a single lookback period for relative strength.
i.e. though a particular lookback may have historically outperformed other lookback lengths, there's always the possibility that it may underperform in the future.
The RS composite model reduces that risk by diversifying across a range of return lengths. It does this by stepping through the lookback periods, from a specified minimum to maximum, and invests in the top (strongest) x securities from each of those. 3
By using a range of RS lengths, the composite model entirely avoids the risk of being exclusively in, what could transpire to be, the worst performing model variant.
See:
Notes:
- As an extreme example: use the Screener and set the Volatility weight to 100% (ReturnA and ReturnB weights to zero) and the least volatile ETFs will appear at the top of the list.
- Reading the Parameter Performance Summary guidelines is highly recommended
- It is also possible to backtest Mean Reversion, by investing in the bottom (weakest) x securities.