Investing in the stock market is akin to harnessing the patterns of the seasons. Just as farmers plant and harvest based on the time of year, investors can potentially reap rewards by understanding and capitalizing on the seasonality of stocks. Today, we delve into a trading strategy that seeks to exploit these temporal patterns, focusing on the stock of CFG.
Company Overview
CFG, known for its robust involvement in the financial sector, offers a myriad of products and services that cater to both retail and commercial clients. These offerings range from basic banking services to complex financial solutions, positioning CFG as a pivotal player in the economic landscape.
Strategy Overview
The strategy in question is a monthly seasonality approach, focusing on taking long positions in April, October, and November, and a short position in March. The backtesting period spans from September 2014 to December 2022, with a total duration of 3019 days. The exposure time, which indicates the percentage of time the strategy was actively engaged in the market, was approximately 35.57%.
Key Performance Indicators
Over the backtesting period, the strategy yielded a final equity of $85,208.57, peaking at the same value. This represents a staggering 752.09% return, vastly outperforming the buy-and-hold return of 119.49%. The annualized return stands at 29.59%, demonstrating the strategy’s effectiveness over the tested period.
| Strategy | Buy and Hold | |
|---|---|---|
| Start Date | 2014-09-24 | 2014-09-24 |
| End Date | 2022-12-30 | 2022-12-30 |
| Duration | 3019 days | 3019 days |
| Exposure Time [%] | 35.57 | 99.9 |
| Equity Final [$] | 85208.57 | 22019.18 |
| Equity Peak [$] | 85208.57 | 30234.88 |
| Return [%] | 752.09 | 120.19 |
| Return (Ann.) [%] | 29.59 | 10.02 |
| Volatility (Ann.) [%] | 30.63 | 42.94 |
| Sharpe Ratio | 0.97 | 0.23 |
| Sortino Ratio | 2.22 | 0.38 |
| Calmar Ratio | 1.33 | 0.15 |
| Max. Drawdown [%] | -22.25 | -65.57 |
| Avg. Drawdown [%] | -4.18 | -6.17 |
| Max. Drawdown Duration | 343 days | 1120 days |
| Avg. Drawdown Duration | 33 days | 63 days |
| # Trades | 25 | 1 |
| Win Rate [%] | 80.0 | 100.0 |
| Best Trade [%] | 40.64 | 120.34 |
| Worst Trade [%] | -13.08 | 120.34 |
| Avg. Trade [%] | 8.95 | 120.34 |
| Max. Trade Duration | 63 days | 3017 days |
| Avg. Trade Duration | 42 days | 3017 days |
| Profit Factor | 9.09 | nan |
| Expectancy [%] | 9.66 | 120.34 |
| SQN | 2.63 | nan |
Risk Management
In terms of risk, the annualized volatility was 30.63%, with a Sharpe ratio of 0.966, suggesting a favorable risk-adjusted return. The maximum drawdown experienced was 22.25%, with an average drawdown of 4.18%. The longest drawdown lasted 343 days, while the average duration was 33 days.
Trade Analysis
The strategy executed 25 trades with an impressive 80% win rate. The best trade saw a 40.64% gain, while the worst trade resulted in a 13.08% loss. The average trade brought in an 8.95% return. Trades lasted, on average, 42 days, with the longest trade enduring 63 days. The profit factor was a robust 9.09, and the expectancy rate stood at 9.66%.
Conclusion
The backtest results of CFG’s seasonality trading strategy are compelling, presenting a case for strategic timing in equity markets. However, investors should consider market changes, transaction costs, and potential slippage that could affect real-world performance. As with any strategy, thorough due diligence and risk management practices are paramount.
“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.”