Portfolio balance strategy 5 years back test. 3.75 times better than NASDAQ 100 index!
Hands-on quantitative trading portfolio strategies
Table of contents
- Main idea
- Dataset
- Back test
- Result
- Final thoughts
- Links
1. Main idea
The NASDAQ-100 is indeed a capitalization-weighted index. This means that larger companies with higher market capitalizations hold a larger weight in the index. Regarding rebalancing frequency, while it’s primarily rebalanced quarterly.
I developed a strategy that rebalancing strategy that uses AI and financial data to provide more frequent (daily, weekly, monthly). I already demonstrated how the strategy performs against equal-weighted portfolio. My rebalancing strategy uses only NASDAQ 100 constituent companies, but performed 3.75x times better then standard capitalization-weighted NASDAQ 100.
Now it’s time to check strategy against NASDAQ 100.
2. Dataset
3. Back test
Re-balance happened every 50 working days. Each re-balance cost is taken as 0.3% (broker commission)
And final chart
4. Result
- An AI-driven re-balancing strategy was developed and tested over a 5-year period.
- Back testing over 5 years showed more then 3.75 times improvement in profit compared to NASDAQ 100 index, while maintaining similar diversification and risk levels.
5. Final thoughts
The AI-driven rebalancing strategy employed in the NASDAQ 100 portfolio yielded a substantial 3.75x performance enhancement over a 5-year period compared to a NASDAQ 100. This outcome underscores the potential benefits of active management and quantitative modeling in portfolio optimization.
To further validate the strategy, we plan to
- Deploy strategies in real world
- Test on other major indexes
