Investors often seek out patterns and strategies to give them an edge in the market, and seasonality is one of the intriguing aspects that can offer just that. Today, we dissect a monthly seasonality trading strategy applied to CSX, a leading supplier in the transportation sector, and unpack the backtesting results that span two decades.
Company Overview
CSX Corporation stands as a juggernaut in the rail transportation industry, providing a multitude of services that include freight transportation, logistics, and intermodal solutions. With a vast network spanning over 20,000 miles of track, CSX connects countless communities and businesses across the eastern United States, ensuring the efficient delivery of goods ranging from automobiles to agriculture.
Strategy Overview
Our trading strategy focuses on taking long positions in CSX stock during the months of February, March, April, July, October, and November, based on historical monthly performance. Spanning from January 2003 to December 2022, the strategy’s duration covers nearly 7,302 days, with an exposure time of roughly 51%.
Key Performance Indicators
The strategy’s performance is compelling with a final equity of over $406,000 from an initial $10,000 investment. The peak equity reaches the same level, indicating a consistent upward trajectory. The overall return stunned at an impressive 3967.81%, outperforming the buy and hold return of 2540.11%. The annualized return stands at a robust 20.38%, a testament to the strategy’s effectiveness.
| Strategy | Buy and Hold | |
|---|---|---|
| Start Date | 2003-01-02 | 2003-01-02 |
| End Date | 2022-12-30 | 2022-12-30 |
| Duration | 7302 days | 7302 days |
| Exposure Time [%] | 50.96 | 99.96 |
| Equity Final [$] | 406781.2 | 268868.23 |
| Equity Peak [$] | 406781.2 | 322292.27 |
| Return [%] | 3967.81 | 2588.68 |
| Return (Ann.) [%] | 20.38 | 17.91 |
| Volatility (Ann.) [%] | 28.06 | 38.05 |
| Sharpe Ratio | 0.73 | 0.47 |
| Sortino Ratio | 1.35 | 0.84 |
| Calmar Ratio | 0.4 | 0.26 |
| Max. Drawdown [%] | -50.82 | -69.19 |
| Avg. Drawdown [%] | -3.39 | -4.2 |
| Max. Drawdown Duration | 581 days | 948 days |
| Avg. Drawdown Duration | 36 days | 35 days |
| # Trades | 60 | 1 |
| Win Rate [%] | 76.67 | 100.0 |
| Best Trade [%] | 31.44 | 2588.79 |
| Worst Trade [%] | -31.36 | 2588.79 |
| Avg. Trade [%] | 6.37 | 2588.79 |
| Max. Trade Duration | 91 days | 7300 days |
| Avg. Trade Duration | 61 days | 7300 days |
| Profit Factor | 5.01 | nan |
| Expectancy [%] | 6.98 | 2588.79 |
| SQN | 3.33 | nan |
Risk Management
Risk evaluation is critical, and here we see an annualized volatility of 28.06%. The Sharpe Ratio at 0.726 suggests a favorable risk-adjusted return. The maximum drawdown was significant at -50.81%, but the strategy’s average drawdown was contained at -3.39%, with average and maximum drawdown durations of 36 and 581 days, respectively.
Trade Analysis
Over the course of 60 trades, the strategy achieved a win rate of 76.67%. The best trade saw a remarkable 31.44% return, with the worst at a comparable -31.36%. The average trade yielded a healthy 6.37%, and the profit factor of 5.006 indicates that the winning trades vastly outweighed the losers. The expectancy of 6.98% further highlights the potential for profitable trades.
Conclusion
Our deep dive into the monthly seasonality trading strategy for CSX reveals that historical patterns can indeed provide a strategic edge. While past performance is not indicative of future results, the data suggests that there are potentially lucrative opportunities to be harnessed within certain months of the year.
“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.”