ETF Basket Trader, 06/08/08
The idea for the ETF Basket Trader began during a chat with Brett Steenbarger about relative value trading systems.
The system trades a basket of nine sector ETF’s long and short. The ETF’s The following equal-weighted basket of Vanguard sector ETF’s is used in the system. Each ETF was traded under identical rules.
- Health Care
- Consumer Staples
- Consumer Cyclical
- Return (annual, unlevered): 17%
- Sharpe Ratio: 2.12
- Max drawdown: 4%
Complete results can be downloaded here (pdf).
Systems that trade like this (+17% unlevered returns, 4% drawdowns, etc) revert to the mean – the trick is to to create a good on-off mechanism (this system shows a hint of volatility correlation) and to use control charts to closely monitor system behavior.