For newsletter subscribers this post is best viewed directly on my blog.

Recap

In Part 3 of the series we reviewed the relationship between returns and correlation of the 2-asset portfolio UPRO and TMF. The basic equal weight strategy was very compelling in terms of total return and CAGR. However, the strategy is susceptible to large drawdowns, especially in situations where US equities and long term bonds are out favor, for example in the 2015 and 2018 periods. We also went over some prototype strategies while introducing two indicators in an attempt to improve the risk-adjusted returns. There were several strategies that showed enough promise to be worth investigating using a more professional backtesting engine.

Introduction

In this blog post we will review the simulated performances of a few UPRO/TMF strategy implementations using the Quantconnect platform. If you’re not familiar with the platform, it is an algorithmic trading platform that provides backtesting and live trading across of variety of asset classes including: equities, futures, forex, options, and cryptocurrencies. I like using the platform because of the access to a large number of asset classes, the development team is responsive and you can code strategies in Python (even though the underlying platform is built in C). The strategies’ performances are evaluated using pyfolio and ffn. Note that in some cases their calculations are slightly different.

Outline

Strategy Description

Benchmark Results

Basic Strategy Results

Basic Strategy + Risk Management Results

Secret Sauce Results

Conclusion

Future Work

Disclaimers

References/Resources

Strategy Description

Here is an outline of the basic parameters of the various strategies. The strategies implemented in Quantconnect are variants of the equal weight, equal risk contribution weighting schemes. Some of the strategies use the Momersion indicator, some use the MMI Indicator. The parameters:

Covers the period from 2011-01-01 to 2019-04-30.

Starting capital is 100,000.

Lookback is 252 days (not-optimized).

Any indicator windows are 120 days for the long period and 50 days for the shorter (not-optimized).

Daily Rebalance with a tolerance band of +/- 2.5%, (pretty high turnover).

Rebalance is scheduled daily at 10 minutes after market open for UPRO (not-optimized).

Uses Interactive Brokers commission model to estimate transaction costs.

Benchmark Results