ETF Basket Trader, Part 2, 06/10/08
(Part 1 of ETF Basket Trader is here.)
Continuing the experiment, I substituted indices for ETF's in order to get more data for back-testing. The back-tested results from 3/1/2000 - 6/6/2008 were:
Annual Return: 6.3%
Max Drawdown: <11.3%>
S&P Cash Return: 0.0%
S&P Cash
Maximum drawdown: <59%>
However trading just the two most inversely correlated [Note 06/10/08 should be 'positively correlated'] indices, health care and consumer cyclicals,gave much better results(3/1/2000 - 6/6/2008):
Annual Return: 10.78%
Max Drawdown: <7.8%>
S&P Cash Return: 0.0%
S&P Cash
Maximum drawdown: <59%>
Alpha: .01
Beta: .02(!)
Sharpe: 1.06
Blackbox software (TradeStation) for further investigating this idea is available upon request.
Note: Blackbox software is software that doesn't disclose any rules but still outputs trading signals. This sofware is not suitable for live trading.