There are two different techniques for measuring your strategy performance; relative and absolute performance. Before you design your strategy, it's essential to define your metrics for success; as you iterate through strategy ideas, this will help you know where to improve. An absolute return strategy aims to make a consistent, steady return independent of market conditions. It might rely on assets unaffected by market volatility, such as bonds.
Strategies that trade long and short are easier to be designed for an absolute return. The alternative method is to compare or "benchmark" your strategy with a market index. The precise index or market representation you choose can vary, but often funds choose the S&P500.
With a relative return strategy reducing holdings to cash is a net gain relative to a downward market. We've integrated this directly into the QuantConnect results panel so you can load a custom benchmark into your charts to know how your strategy performs relative to the major indices. To access it, click on the "Select Benchmark" menu in the Chart Options on the right-hand side:
We've written the next video in the QuantConnect University series - Sell in May and Go Away to demonstrate the benchmarking functionality. It demonstrates how to code up the Sell in May Strategy, and then we benchmark it to the S&P500 over the same period. With this particular implementation, we achieved the same returns with lower volatility, resulting in an overall better-than-market strategy.
Jared Broad
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
To unlock posting to the community forums please complete at least 30% of Boot Camp.
You can continue your Boot Camp training progress from the terminal. We hope to see you in the community soon!