I have a trading strategy， if applied on SPY alone, the return is $0.37/share daily for the last 12 years with Sharpe ratio 1.1. During the same period, the spy has a daily return less than $0.02/share with Sharpe raio 0.5. If I apply the same strategy on msft, the daily return is $0.2/share with sharpe 1.1, still far better than buy and hold msft till close. so I think, if the strategy applied on both spy and msft at the same period, it should produce better than 1.1 Sharpe, since loss on SPY could have been covered by msft. if that is true, I will have a holy grail with huge capacity and high sharpe.but it turns out, the combined sharpe is only 0.96. If the strategy applied on the 500 stocks of spy, the sharpe is 0.6, same level as holding spy. Any reason why combing multiple good trades resulted poor outcome?
How did you allocate % when you had tested the spy and msft? Meaning, when it was just spy, when it was just msft, and when combined what % capital to each for the combined strategy? Did you check to see if the numerator was what you expected for the combined?
same capital when they were tested independently. The question is, two time series returns when combined produce worse result.
Im assuming you are ok with daly data for longer time frames that have periods of hi and low vol,as well as l up and down moves..yes,must walk foward...
No. Tick data only no matter the trading time frame, otherwise too many assumptions have to be made. No fuzzy math, no fuzzy backtesting.