The Quantopolis Portfolio I investment strategy combines two very strong performing strategies, the ES Pull Back and VX Short into one account. The amount of capital allocated to each strategy is as described in the summary description for each strategy and totals to $27,825.
Backtesting was done from 2004 to 2016 as this is the period where data was available for all the strategies. During this period the Quantopolis Portfolio I had a net average annual return of 52.75% with a maximum drawdown of -20.11% of allocated capital of $27,825. This translates to a Risk Reward ratio of 2.62. The portfolio averaged 25 trades per year. In addition, as the table below illustrates, during this 13 year period the portfolio had 78% up months and no down years.
In contrast, during the same period, using a buy and hold strategy on the S&P 500 index as the benchmark, we get an average annual return of 6.93% with a maximum drawdown of -56.78% for a risk reward ratio of 0.12. During this 13 year period the S&P 500 had 63% up months and three down years.
Thus, if we use the Risk Reward factor to compare the portfolio performance with a buy and hold approach in the S&P 500, we can see that the Quantopolis I Portfolio did about 22 times better. In particular, by combining two strategies into one portfolio we get a higher risk reward ratio than when trading each one of the constituent strategies as a stand alone. This is the power of true diversification which employs different strategies with different assumptions.
It is worth noting that in the above discussion, the monies generated from the Portfolio I strategies were not re-invested in the system. On the other hand, by its nature, a buy and hold approach automatically re-invests any monies that are generated.
Thus one could potentially increase the returns of the Portfolio I by re-investing some of the monies generated. That said, investing in the Futures Markets requires different considerations than investing in a stock or an ETF. For a more complete discussion between the two approaches, including risk considerations and money management, please read our posts Investing in the Futures Markets and Compounding With Futures