About three years ago I created a low frequency trading system. The only reason it's low frequency was due to market data access and available resources, as there's nothing much frequency specific about the strategies I've developed. I applied my strategies so that their performance could be compared to the OBX index, in other words the 25 most liquid stock on the Oslo Stock Exchange.
So it's been a few years now, and I think it's time to do a review of the performance. The strategies reviewed here have remained unchanged for this period, and the portfolio consists of in total 9 different stocks, all part of the OBX index. There are several distinct strategies, and based on back-test performance (three years ago) a stock/strategy combination was selected so that of the 9 distinct stocks my portfolio would consists of 20 separate stock/strategy combinations.
The benchmark we're comparing against is the OBX index, and the time period is roughly three years, in other words from the beginning of 2008 till now (almost end of 2010, 8. of December to be accurate). A buy-and-hold strategy would not have performed very well, ending at about the same value as we started on three years ago. Not an impressive performance by any means.
Individual stock/strategy performance
Below I've put in a graph showing each stock/strategy performance. All of the strategies are allowed to go both long and short, and some of them also stay out of the market if they so chose to do. Now remember that this performance is not based on over-fitted back-testing. This is based on signals given by the strategies that I could, and indeed did trade on. The signals (long/short/close) are given after market close, and acted on the next trading day at opening prices.
I wouldn't comment too much on each of them, other than saying the vast majority have given a profit over the given period. The Y-axis represents stock/strategy value with an investment of 1 NOK at T = 0, while the X-axis shows the number of days since T = 0.
There's quite a bit of work that I could have put into selecting the optimal portfolio, doing continuous rebalancing etc. But I made it simple by doing an equally weighted portfolio without rebalancing. The system focus has been on individual stock/strategy performance and not portfolio performance, and at the moment I have a few exams to prepare for as well.
So in the graph below I've plotted the portfolio performance against the OBX performance. No rebalancing is done at any moment, so each strategy starts out with 1/20th (since there's 20 stock/strategy combinations) of the total portfolio size at T = 0. In our example this is represented by a 1 NOK total investment. This could of course be any amount, but that's not the point.
Long only performance
Maybe it's unfair to compare a long/short strategy to a buy-and-hold strategy. So what happens if I limit all strategies to being long/close only. In other words, if they wish to go short, I change the signal to close instead, forcing it to go out of the market. This isn't optimal as all strategies are run and monitored as if they could go short.
Using an equally weighted portfolio probably isn't optimal, so if there was one thing to look at it would be the portfolio construction and rebalancing routines. Also, I should include the risk free rate for investments that are taken out of the market (close signal), but it wouldn't change my results too much.
None of the results for my portfolio presented here has used any form of leverage. For those of you curious about transaction costs I haven't done any analysis on this but can say that a total of 434 long signals, 408 short signals, and 415 close signals was given over this three year period. That should be about 2 trades each day for all the 20 stock/strategy combinations combined, if my calculations are correct.