Backtest

Intro

Here we present the parameters in detail that you can set in BACKTEST section.

_images/backtest_menu.png

Whenever you change parameters, just hit a run_backtest button to see updated results.

Stock-Picking section

There are 2 selections to make in Stock-Picking section:

  • Universe Selection
    • S&P 100 Index
    • S&P 500 Index (PREMIUM ACCOUNT only)
    • S&P 600 Small Cap Index (PREMIUM ACCOUNT only)
    • S&P 400 Mid Cap Index (PREMIUM ACCOUNT only)
    • FTSE 350 Index (PREMIUM ACCOUNT only)
    • Eurostoxx 300 Index (PREMIUM ACCOUNT only)

Depending which universe you choose, stocks will be selected from that particular universe.

  • Factor Selection
    • Value
    • Quality
    • Low Volatility
    • Asset Growth
    • Accruals
    • Shareholder Yield
    • Momentum

You can combine up to 3 factors, e.g. : factor_combination

The combination above means:

  • First, we will choose 80 stocks that rank highest based on Value
  • Then, we will choose 40 with highest Quality rank, from 80 stocks selected one line above
  • Finally, we will choose 10 stocks with highest Accruals rank, from 40 stocks selected one line above

Selection is always industry neutral, so if you select 30 stocks based on any factor, equal amount of stocks will be selected from each industry. Thus, it is possible that even if you set 30 stocks, not exactly 30 stocks will be selected, but number close to 30, which is divisable by the number of sectors.

Stock selection takes place once per year in backtest, always on 30 June. You can check this in the weights section after you have run a backtest. The selected shares change in June each year.

_images/weights.png

Rebalancing section

In Rebalancing section you can decide the following:

  • Frequency of rebalancing :
    • Monthly
    • Quarterly
    • Yearly

This setting is useful, if you do not plan to rebalance your real portfolio every month, but e.g. once per quarter or year. You can see how the risk of your portfolio increases by rebalancing less frequently and decide if this increase in risk is acceptable for you.

  • Weighting algorithm :
    • Risk Parity
    • Equal Weight

You can choose if you want to use risk-parity weighting, where the weight invested in each stock is inversely proportional to its volatility, or to have equal amount invested in each stock.

  • Momentum filter

You can choose what type of trend filter you will use. If you go with setting: 12, then if the price of aS stock is below 12-month simple moving average, it will have 0% in your portfolio. This is useful and effective way to avoid drawdowns in 2001, 2008. If you set setting to 0, momentum filter is not used.

  • Transaction costs

They depend on the universe you select. Thus, S&P 500 stocks definitely have lower transaction costs than 0.1%. But if you use small cap stocks, you could be more conservative and go with higher transaction costs.