Investors are always looking for an edge in the stock market, and one of the less tapped into, yet potentially lucrative strategies, is exploiting market seasonality. Today, we’re going to explore a fascinating approach to trading that might just change the way you think about those calendar pages.
Company Overview
Snap-on Incorporated, represented by the symbol SNA, is a company that has captured the attention of savvy investors. Known for its high-quality tools, equipment, and software for professional users, Snap-on has carved a niche in the market that speaks to durability and innovation. The products offered by Snap-on range from power tools to diagnostic software, serving a wide array of industries including automotive, aviation, and construction.
Strategy Overview
The strategy we’re dissecting today is a monthly seasonality trading approach applied to SNA from close to close, with no commissions or slippage included in the backtesting. The strategy involves taking long positions in April, May, July, October, and November, while going short in June. Spanning from January 2003 to December 2022, this strategy has seen the market for a total of 7302 days, with an exposure time of 51% of the period.
Key Performance Indicators
Impressively, the strategy has turned an initial capital of $10,000 into $505,400, peaking at $509,979. This represents a return of 4954%, dwarfing the buy & hold return of 1186%. Annually, this strategy yielded a 21.69% return, showcasing its robustness over the two-decade span.
| Strategy | Buy and Hold | |
|---|---|---|
| Start Date | 2003-01-02 | 2003-01-02 |
| End Date | 2022-12-30 | 2022-12-30 |
| Duration | 7302 days | 7302 days |
| Exposure Time [%] | 51.1 | 99.96 |
| Equity Final [$] | 505400.18 | 132834.32 |
| Equity Peak [$] | 509979.78 | 141933.03 |
| Return [%] | 4954.0 | 1228.34 |
| Return (Ann.) [%] | 21.69 | 13.82 |
| Volatility (Ann.) [%] | 25.45 | 33.25 |
| Sharpe Ratio | 0.85 | 0.42 |
| Sortino Ratio | 1.74 | 0.72 |
| Calmar Ratio | 0.47 | 0.21 |
| Max. Drawdown [%] | -45.95 | -65.78 |
| Avg. Drawdown [%] | -3.15 | -4.05 |
| Max. Drawdown Duration | 885 days | 930 days |
| Avg. Drawdown Duration | 33 days | 39 days |
| # Trades | 80 | 1 |
| Win Rate [%] | 75.0 | 100.0 |
| Best Trade [%] | 25.39 | 1228.47 |
| Worst Trade [%] | -30.94 | 1228.47 |
| Avg. Trade [%] | 5.03 | 1228.47 |
| Max. Trade Duration | 64 days | 7300 days |
| Avg. Trade Duration | 46 days | 7300 days |
| Profit Factor | 5.1 | nan |
| Expectancy [%] | 5.43 | 1228.47 |
| SQN | 3.55 | nan |
Risk Management
Risk is an inseparable part of trading, and this strategy is no exception, with an annualized volatility of 25.45%. However, the Sharpe Ratio stands at 0.852, indicating a favorable risk-adjusted return. The maximum drawdown was -45.95%, with an average drawdown of -3.15%, lasting on average 33 days.
Trade Analysis
Looking deeper into the trades, the strategy executed 80 trades with a 75% win rate. The best trade soared at 25.39%, while the worst dipped to -30.94%. The average trade gained 5.03%, with trades lasting an average of 46 days. The profit factor is a solid 5.1, with an expectancy of 5.43%.
Conclusion
The backtesting results of SNA’s trading strategy are quite compelling, providing a substantial outperformance against a simple buy & hold strategy. As always, it’s important to approach any strategy with caution, understanding the risks involved. However, for those looking to incorporate seasonality into their trading arsenal, these findings are indeed promising.
“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.”