- This combination model aims to provide good returns with low drawdowns during all market conditions.
- For the period 2000 to 2016 the backtested annualized return is 24.0% with maximum drawdown of -10.5%.
- There are five equal weight component models in Combo5.
- Three of which are also represented in Combo3.R1: Best(SPY-SH).R1, Best(SSO-Bond).R1, and the Best1(Select SPDR).R1.
- The two additional component models in Combo5 are: (SPY-IEF) Timer1, which switches between SPY and IEF; and (QLD-IEF) Timer, which switches between QLD and IEF.
Simulated performance of component models
The performance curves of the five equal weight component models of Combo5 are shown below.
(Figure-1) Best(SPY-SH).R1 ,
(Figure-3) Best1(Select SPDR).R1 ,
(Figure-4) (SPY-IEF) Timer1, which switches between SPY and IEF, and
(Figure-5) (QLD-IEF) Timer, which switches between QLD and IEF.
Simulated Performance of Combo5
The simulated trading performance of the system from Jan-2000 to Feb-2016 is shown in Figure-6 below. The annualized return would have been 24.0% with maximum drawdown of -10.5%. All values are with dividends reinvested.
The simulated trading performance of the system from Feb-2014 to Feb-2016 is shown in Figure-7 below. The total return would have been 44.6% with maximum drawdown of -6.8%. Combo5 avoided the recent market correction and continued to produce positive returns while the stock market lost about 12%.
Performance statistics for other periods of interest are shown in the Appendix.
Figure-8 shows performance from Jan-2000 to Dec-2015. The green graph is the performance ratio of the Combo5 to SPY. A rising slope of this graph indicates when Combo5 outperformed SPY; Combo5 produced about 17 times the value to December 2015 which one would have had from a buy-and-hold investment in SPY over the same period.
Calendar year performance ranged from a maximum of 49% for 2009 to a minimum of 5% for 2000. There would never have been a loss over any calendar year.
Rolling 1-year returns
Figure-10 shows the rolling 1-year returns starting each trading day from 2000 to 2015. The minimum return over 12 months was 1% and the maximum was about 80%.
Distribution of Monthly Returns
Figure-11 shows the distribution of monthly returns. There were a total of 192 months in the period under consideration. Combo5 produced positive returns during 137 months and only 55 months had negative returns. SPY had 81 months of negative returns.
Correlation between component models
The correlation between the component models is fairly low, with 1.0 signifying 100% correlation.
The below table highlights the advantage of combining models. For example, the maximum drawdowns from inception range from -18.7% to -27.3% for the five component models. But when combined, the drawdown becomes an acceptable -10.5%.
Following the Model
This model can be followed live at iMarketSignals (requires Gold subscription), where it will be updated weekly together with our other trading- and macro models.
As of 2/16/16 the holdings for Combo5 are 40% IEF, and 20% each SH, TLT and XLV.
The simulated trading performance of the system for other periods of interest are shown Figures-12, -13 and -14
One should be aware that all results for the Combo5 system are from a simulation and not from actual trading.
All results are presented for informational and educational purposes only and shall not be construed as advice to invest in any assets. Out-of-sample performance may be much different. Backtesting results should be interpreted in light of differences between simulated performance and actual trading, and an understanding that past performance is no guarantee of future results. We can make no claims about future performance of this combination model, which may include significant potential for losses. All investors should make investment choices based upon their own analysis of the asset, its expected returns and risks, or consult a financial adviser. The designer of this model is not a registered investment adviser.