presentation
TRANSCRIPT
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Trend Following
Abhishek Kulkarni
Dublin City University
6th November 2014
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Overview
Time Series Momentum
Testing significance of correlation between returns
Data and methodology
Backtest and Live trade results
Remarks
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Time Series Momentum: Definition
Definition
Past returns of a security predict future returns .
Characterized by serial correlation of returns.
If the returns over past n months were positive(negative) , it will bepositive(negative) for the next m months before a trend reversal occurs .
Direct test of random walk hypothesis .
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Why assets exhibit time series momentum ?
For futures, the persistence of roll returns.
The slow diffusion, analysis, and acceptance of new information.
The forced sales or purchases of assets of various type of funds.
Market manipulation by high-frequency traders.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Correlation coefficient for two samples x , y is given by the well known formula
ρ(X ,Y ) =Cov(X ,Y )√Var(X )Var(Y )
.
In practice, we use the MATLAB routine corrcoef to obtain the p-value and thecorrelation coefficient r.
The pair (X,Y) that has optimal correlation and minimum p-value is chosen aslookback and holding period .
If the returns during lookback period were positive (negative) , long (short )the asset for the duration specified by holding period .
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Data and methodology
Strategy is tested and traded on three futures and Korean Bond .
Historical data is divided into two intervals , backtest window and livetrading window.
Test statistic is calculated on backtest data and is used as yardstick forlive trading .
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Dividing the historical data
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Flowchart
Asset Data
Optimal Lookback , Holding period
Calculate returnsof lookback period
Returns positive? Short the assetLong the asset yes no
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Backtest Results
Aluminium
Figure: Correlation coefficient Table. Rows represent lookback and columns representholding period
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: P Value Table. A low p value indicates that the correlation is significantlydifferent from zero
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Live Trade Result
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on live trading data..
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on live trading data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Copper
Figure: Correlation coefficient Table. Rows represent lookback and columns representholding period
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: P Value Table. A low p value indicates that the correlation is significantlydifferent from zero
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Live Trade Result
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on live trading data..
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on live trading data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Treasury Note Future
Figure: Correlation coefficient Table. Rows represent lookback and columns representholding period
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: P Value Table. A low p value indicates that the correlation is significantlydifferent from zero
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Live Trade Result
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on live trading data..
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on live trading data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Korean Bond
Figure: Correlation coefficient Table. Rows represent lookback and columns representholding period
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: P Value Table. A low p value indicates that the correlation is significantlydifferent from zero
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on backtest data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Live Trade Result
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 1 to 6 months on live trading data..
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Figure: Sharpe ratio , APR and cumulative returns for 1 month holding period and forlookback periods ranging from 7 to 12 months on live trading data.
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Backtest Results for TSMOMSymbol Lookback-Holding
period optimal pair(months)
Corrleation APR Sharperatio
Maximumdrawdown
Aluminium(LME) (5,1) 0.3358 6.39% 1.92 -51.22%Copper(LME)
(11,1) 0.50 32.02% 1.39 -81.91%
TU(CBOT)
(9,1) 0.61 1.09% 2.13 -46.89
Korean Bond (10,1) 0.71 0.45% 1.55 -89.86
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Live trade Results for TSMOMSymbol Lookback-Holding
period optimal pair(months)
Corrleation APR Sharperatio
Maximumdrawdown
Aluminium(LME) (5,1) 0.3358 22.69% 1.36 -61.89%Copper(LME)
(11,1) 0.50 4.9% 1.39 -81.91%
TU(CBOT)
(9,1) 0.61 1.09% 1.33 -78.29
Korean Bond (10,1) 0.71 -2.10%
-1.77 NaN
Introduction Time Series Momentum Tests for Correlation Data and Methodology Flowchart Backtest Results Remarks
Moving Average
Backtest Results for Moving Average StrategySymbol Moving Aver-
age window(months)
APR Sharpe ra-tio
Maximumdrawdown
Aluminium(LME) 4 5.86% 1.88 -51.22%Copper(LME)
4 3.68% 0.85 -89.40 %
TU(CBOT)
4 1.60% 1.71 -81.20
Live Trading Results for Moving Average StrategySymbol Moving Aver-
age window(months)
APR Sharpe ra-tio
Maximumdrawdown
Aluminium(LME) 4 9.57% 1.07 -84.56%Copper(LME)
4 5.08% 1.17 -99.99 %
TU(CBOT)
4 -0.34% -1.49 -96.14%