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Back-Testing the Strategy

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TitleBack-Testing the Strategy
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Once the strategy parameters have been defined, it is essential to perform a thorough back-test to validate the strategy’s performance across different market environments. Key performance metrics to evaluate include:
o    Annualized Return
o    Sharpe Ratio
o    Maximum Drawdown
o    Turnover Rate
This back-test will provide insight into the strategy’s overall performance, consistency, and risk profile, highlighting potential areas for further refinement.

 

Initial Selection of Variables

Decile-Based Return Analysis for Predictive Power

Combining Variables for Multi-Factor Analysis

Stock Selection Based on Ranking System

Incorporation of Additional Buy-Sell Rules

Determining Buy-Sell Frequency

Rebalancing and Trim Frequency

Setting Trimming Boundaries

Determining the Number of Stocks in the Strategy

Turnover Management: Reducing Excessive Trading

Frequency Adjustment for Portfolio Trimming and Buy-Sell List

Portfolio Size Adjustment

Stress Testing for Robustness

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