Investors often seek out patterns and strategies to gain an edge in the volatile world of stock trading. Today, we’re delving into a fascinating aspect of the market that can offer such an advantage: seasonality. By understanding and leveraging the cyclical trends of stocks, savvy traders can potentially enhance their returns and make more informed investment decisions. In this comprehensive analysis, we’ll explore the backtested results of a monthly seasonality trading strategy applied to the stock symbol ON, which could revolutionize the way you approach your investment portfolio.
Company Overview
ON Semiconductor Corporation is a leading semiconductor supplier offering a comprehensive portfolio of energy-efficient solutions. Their products help engineers solve their unique design challenges in automotive, communications, computing, consumer, industrial, medical, aerospace and defense applications. ON Semiconductor is at the forefront of the automotive industry, providing innovations in advanced driver-assistance systems, power management, and more. The company also contributes significantly to the advancement of the Internet of Things (IoT), with a range of components that power a myriad of smart, connected devices. With a relentless focus on power efficiency and technology, ON Semiconductor stands out as a key player in the semiconductor sector.
Strategy Overview
Our analysis focuses on a specific monthly seasonality trading strategy for ON Semiconductor Corporation, which involves initiating a long position at the close of April, June, October, and November, and then selling at the close of the following month. This strategy was backtested over an impressive 20-year period, from the start of January 2003 to the end of December 2022, covering a duration of 7302 days. Investors who followed this strategy were exposed to the market for approximately 34.44% of the time, suggesting a focused approach that targets specific periods of expected seasonal strength.
Key Performance Indicators
The strategy yielded stunning results, with the final equity reaching an incredible $858,451.61 from an initial capital of $10,000, and even peaking at $1,029,427.22. This amounts to an 8484.52% return, which far outstrips the buy-and-hold return of 4231.25% for the same period. The annualized return stood at a robust 24.96%, showcasing the strategy’s ability to generate impressive profits over time.
| Strategy | Buy and Hold | |
|---|---|---|
| Start Date | 2003-01-02 | 2003-01-02 |
| End Date | 2022-12-30 | 2022-12-30 |
| Duration | 7302 days | 7302 days |
| Exposure Time [%] | 34.44 | 99.96 |
| Equity Final [$] | 858451.61 | 418025.86 |
| Equity Peak [$] | 1029427.22 | 511349.86 |
| Return [%] | 8484.52 | 4080.26 |
| Return (Ann.) [%] | 24.96 | 20.54 |
| Volatility (Ann.) [%] | 37.2 | 67.13 |
| Sharpe Ratio | 0.67 | 0.31 |
| Sortino Ratio | 1.41 | 0.59 |
| Calmar Ratio | 0.47 | 0.26 |
| Max. Drawdown [%] | -52.81 | -79.98 |
| Avg. Drawdown [%] | -6.73 | -9.87 |
| Max. Drawdown Duration | 1303 days | 2687 days |
| Avg. Drawdown Duration | 66 days | 84 days |
| # Trades | 60 | 1 |
| Win Rate [%] | 73.33 | 100.0 |
| Best Trade [%] | 99.26 | 4080.67 |
| Worst Trade [%] | -33.46 | 4080.67 |
| Avg. Trade [%] | 7.7 | 4080.67 |
| Max. Trade Duration | 63 days | 7300 days |
| Avg. Trade Duration | 41 days | 7300 days |
| Profit Factor | 3.96 | nan |
| Expectancy [%] | 9.4 | 4080.67 |
| SQN | 2.76 | nan |
Risk Management
Risk assessment is crucial, and here our strategy exhibits an annualized volatility of 37.20%. While this might seem high, the Sharpe Ratio, which adjusts returns for this volatility, is at 0.67, indicating that the risk taken was adequately compensated by the returns. However, the strategy experienced a maximum drawdown of 52.81%, which is a significant drop, but the average drawdown was kept lower at 6.73%. The longest period for a drawdown was 1303 days, with an average duration of 66 days, pointing to the resilience required for such a trading approach.
Trade Analysis
Across the 20 years, the strategy executed 60 trades with a high win rate of 73.33%. The best trade saw a staggering 99.26% gain, while the worst trade resulted in a 33.46% loss. On average, each trade brought in a gain of 7.70%, and trades lasted an average of 41 days, with the longest-running for 63 days. These factors contributed to a strong profit factor of 3.96 and an expectancy of 9.40%, indicating the strategy’s overall effectiveness and potential profitability.
Conclusion
The backtest of this monthly seasonality trading strategy for ON Semiconductor Corporation reveals the potential of a well-timed, systematic approach to investing. While past performance is not indicative of future results, this strategy’s strong historical performance, coupled with a high win rate and reasonable management of risks, suggests that understanding and applying seasonal trends could be a valuable component of an investor’s toolkit. As with any strategy, investors should consider their risk tolerance and perform due diligence before implementing new trading methods.
“Make the invisible visible. My goal is to shine a light on the subtle seasonal signals in the stock market, providing investors with the insight needed to make informed decisions. By breaking down the complexities of seasonality, I strive to empower our audience with knowledge and foresight, turning data into action.”