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SP500 validations

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jmaskiew edited this page Jan 1, 2023 · 7 revisions

1. Model validations

  • Accuracy

2. strategies validations

  • Compounded Annual Growth Rate
    The compound annual growth rate is the rate of return (RoR) that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment’s life span.
  • Calmar Ratio
  • Downside Deviation
  • Jensen's Alpha
  • Log Max Drawdown
  • Max Drawdown
  • Pure Profit Score
  • Sharpe Ratio
  • Sortino Ratio

3. Benchmark returns comparison

General idea of Benchmark is if our strategy performs better than do nothing. The performance in comparison to do very few but very effective trades. In the other words, Benchmark is how much it was possible to milk out of markets.

Strategies:

  1. Buy and hold (buy on start of performence period and sell on the end)
  2. On the basis of t you buy on start of the period and sell on the end if price is higher on the start, benchmark sells on start if the price on the end of period is higher. Buy and hold is same strategy but with time period of whole data set.
  3. Buy on the min, sell on the maximum, once in given period.

I would propose 4 scale to grade models in comparison to benchmark of time periods:

  • A++ Weekly
  • A+ Monthly
  • A Quaterly
  • B Half of Year
  • C Yearly
  • D Buy and hold

Any model with higher grade then C should be consider, on the basis of Benchmark.

Another take would be some popular strategies like DCA (dollar cost averaging)

Different validations methods for strategies with "reinvesting" and without (stable tradable depo) should be consider.

4. Monte Carlo simulations

  • in progress
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