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Mebane Faber's Relative Strength Strategy for TAA

AKA

Relative Strength Strategies for Investing
Asset Class Momentum - Rotational System

Paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1585517
(The paper linked in the source is the wrong paper.)

This is another simple rule-based strategy that seems to be effective in backtests.

  1. Measure the M-month trailing returns of a basket of stocks
  2. Rank the stocks and order the top-K

For this backtest I use M=3, K=1 and the basket of ETFs {SPY, EFA, GLD, AGG, VNQ}.

Clone Algorithm
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Backtest from to with initial capital
Total Returns
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Alpha
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Beta
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Sharpe
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Sortino
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Max Drawdown
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Benchmark Returns
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Volatility
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Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 5112d8bcb50c2c08e70a12b0
This backtest was created using an older version of the backtester. Please re-run this backtest to see results using the latest backtester. Learn more about the recent changes.
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7 responses

Great stuff! I like these simple systems that yield relatively uncorrelated returns.

Thanks, Simon! I love the simplicity of these little guys too

John, your shared systems are really great. This is the second one I'm cloning in 2 days. :)

Thanks, Ken. Glad i could help :)

Draw down is 40%+ ???

Steve, yes that's correct. One can reduce this somewhat by combining the relative strategy above with the MA rule.