I did a very simple exercise with outstanding performance results. I would like to know if there is a mistake(s). Can anyone review my exercise and find out if it is ok or if I am missing something? 31/12/1974 - initial capital 1000$ 80% of portofolio in T-notes 20% as margin for Dow Jones future Different scenario according to the leverage choosen. No leverage - ending capital at 31/12/2004 86.356$ (17% annual return on average) 100% leverage - ending capital at 31/12/2004 680.302$ (28.1% annual return on average) It seems too easy. Comments? P.S. I am attaching the spreadsheet with all the details.
I will take a closer look, but on the surface the main problem is that the returns for bonds are not just the yield at the start (end) of the period. You also have capital gains/losses. This will affect your total return.
That is correct... Assuming positive carry, just use the prices of the bonds (these bonds may change since your duration will get shorter and shorter with time); this will give you the bulk of your returns; then assume an average coupon (on a 5yr) and see what that gives you. Not an easy task but there is no other way that I see to do it (when did Tsy futures start trading??)
Better yet...if there were any zero coupons back in 1980 (not sure when the stripping mania started occuring) then use these instead of par bonds.
How many times do you have a margin call? Whats the strategy for dealing with the margin call if & when it happens? I realize it may never occur in large 100k+ accounts, but it would in smaller for obvious reasons. Is the idea simply being able to use futures inherent leverage while capitalising on T-Bonds? It seems ones losses ( and therefore potential margin calls) get large when the DJI is losing 15% in a year. But it looks a great strategy. Seems like something any smart hedge fund would use. Do they?
I have a strategy below that returns 25.89% on average from 95-05 for the DJI 30. However I'm worried about a bias, because I havent added and deleted actual DJI stocks, I just backtested the current 30. It also had a 40% drawdown in 01-02, but the 100k account in 95 is now 867k versus 281k for the buy and hold. All trades Long trades Short trades Initial capital 100000.00 100000.00 100000.00 Ending capital 866690.39 866690.39 100000.00 Net Profit 766690.39 766690.39 0.00 Net Profit % 766.69 % 766.69 % 0.00 % Exposure % 95.14 % 95.14 % 0.00 % Net Risk Adjusted Return % 805.90 % 805.90 % N/A Annual Return % 25.89 % 25.89 % 0.00 % Risk Adjusted Return % 27.21 % 27.21 % N/A -------------------------------------------------------------------------------- All trades 143 143 (100.00 %) 0 (0.00 %) Avg. Profit/Loss 5361.47 5361.47 N/A Avg. Profit/Loss % 3.27 % 3.27 % N/A Avg. Bars Held 36.15 36.15 N/A -------------------------------------------------------------------------------- Winners 70 (48.95 %) 70 (48.95 %) 0 (0.00 %) Total Profit 1211770.47 1211770.47 0.00 Avg. Profit 17311.01 17311.01 N/A Avg. Profit % 11.11 % 11.11 % N/A Avg. Bars Held 59.39 59.39 N/A Max. Consecutive 4 4 0 Largest win 245233.40 245233.40 0.00 # bars in largest win 251 251 0 -------------------------------------------------------------------------------- Losers 73 (51.05 %) 73 (51.05 %) 0 (0.00 %) Total Loss -445080.08 -445080.08 0.00 Avg. Loss -6096.99 -6096.99 N/A Avg. Loss % -4.24 % -4.24 % N/A Avg. Bars Held 13.88 13.88 N/A Max. Consecutive 6 6 0 Largest loss -61292.13 -61292.13 0.00 # bars in largest loss 19 19 0 -------------------------------------------------------------------------------- Max. trade drawdown -104860.01 -104860.01 0.00 Max. trade % drawdown -22.96 % -22.96 % 0.00 % Max. system drawdown -186236.89 -186236.89 0.00 Max. system % drawdown -37.24 % -37.24 % 0.00 % Recovery Factor 4.12 4.12 N/A CAR/MaxDD 0.70 0.70 N/A RAR/MaxDD 0.73 0.73 N/A Profit Factor 2.72 2.72 N/A Payoff Ratio 2.84 2.84 N/A Standard Error 68335.85 68335.85 0.00 Risk-Reward Ratio 1.00 1.00 N/A Ulcer Index 11.12 11.12 0.00 Ulcer Performance Index 1.84 1.84 N/A Sharpe Ratio of trades 0.43 0.43 0.00 K-Ratio 0.06 0.06 N/A -------------------------------------------------------------------------------- Expectancy (per risk) 0.31