FXI - Back Testing Results

FXI is my latest quantitative currency trading strategy. It shares some features with FXQ (portfolio currency trading, virtually unlimited capacity, trading once a day, 60% correlation to FXQ), although it is based on a different principle - currency index arbitrage. Since FXI tends to be profitable even during FXQ flat periods, FXI may supersede FXQ in the future. More on the FXI strategy can be found on the FXI Strategy page.

The strategy is scheduled to start live trading on August 1, 2012. The actual performance will be tracked on the FXI Real Performance page of this web site.

 

FXI - HYPOTHETICAL PERFORMANCE REPORT FROM STRATEGY BACK TESTING

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PLATFORMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

1. Monthly Rates of Return (ROR), Before Performance Fees

Below results are net of spreads and commissions and before performance fees. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

    

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total

VAMI

1999

1.78% (1.10%) 2.35% (2.56%) 2.98% 1.24% (1.73%) 3.52% 0.10% 0.76% 1.57% (0.25%) 6.90% 1,069.0

2000

1.86% 2.31% 1.86% 1.03% 1.16% 0.79% 1.31% 3.38% 2.01% 2.61% 1.29% 2.96% 25.02% 1,336.5

2001

2.13% 3.28% 1.23% 1.88% (0.68%) 1.95% 1.85% 1.71% (1.80%) 2.68% 0.32% 0.86% 16.41% 1,555.8

2002

0.53% 1.57% 0.66% 1.26% 1.10% (0.53%) (0.27%) 2.40% 1.10% 1.02% 0.70% (0.63%) 9.24% 1,699.5

2003

2.78% (0.26%) 2.72% 1.01% 3.65% 0.61% 2.14% 0.95% 2.09% 2.26% 1.56% 0.42% 21.77% 2,069.5

2004

1.37% 3.62% 3.08% 4.31% 3.67% 4.76% 2.36% 0.66% 2.09% 0.55% 3.74% 3.04% 38.70% 2,870.4

2005

1.97% 0.42% 2.25% 1.03% 0.68% 0.28% 3.16% (0.15%) (0.13%) 4.36% 0.33% 1.55% 16.80% 3,352.6

2006

1.09% 1.45% (1.76%) 3.24% 3.09% 4.00% 0.25% 1.27% 0.92% 0.42% (1.30%) (0.33%) 12.88% 3,784.6

2007

0.96% 1.44% 0.86% 0.47% 0.18% (0.53%) 0.93% 2.20% (2.48%) 1.16% 2.71% 1.33% 9.53% 4,145.2

2008

2.62% 0.60% 3.97% 2.53% 1.26% 1.35% 0.87% (0.15%) 0.64% 1.67% 8.64% 3.78% 31.24% 5,440.1

2009

3.13% 4.51% (2.88%) 4.64% 0.46% 4.58% (2.82%) 0.37% (0.91%) 1.69% 2.56% 0.72% 16.83% 6,355.5

2010

(0.18%) 1.15% 0.87% 1.11% 1.09% (1.82%) 1.23% 2.50% 0.18% 0.96% (1.36%) 1.22% 7.09% 6,806.4

2011

2.37% 0.62% (0.57%) (0.59%) 0.79% 1.49% 0.45% (1.83%) 4.49% 0.41% 1.29% 1.12% 10.36% 7,511.6
2012 (1.26%) 0.38% 1.06% 0.57% 1.34%     Start of Real Trading    

Daily rates of return (ROR) from strategy back testing, as well as combined FXQ/FXI performance are available upon request.

2. Performance Analytics - FXI (Before Performance Fees)

Strategy Returns (Before Performance Fees)

Testing period

Jan 1999 - May 2012

Net profit on fixed capital with / without monthly profit reinvesting

666.8% / 209.0%

Compound average annualized ROR

16.51%

VAMI - Growth of $1,000, compounded monthly (fees not deducted)

7,667.8
Monthly Profit Factor (Profit to Loss Ratio); (sum of positive RORs) to (sum of negative RORs) 7.71

# Profitable months / average positive ROR

132 / 1.80%

# Losing months / average negative ROR

28 / (1.10%)
Kurtosis of monthly RORs 1.89
Skewness of monthly RORs 0.39

% Profitable months

82.5%
Ratio avg. positive / avg. negative monthly ROR (Gain to Loss Ratio) 1.64
Max. # of consecutive profitable / losing months 29 / 2
Maximum / minimum month-to-month ROR 8.64% / (2.88%)
Maximum / minimum daily ROR 6.88% / (6.76%)
Maximum / minimum 5-day rolling ROR 7.96% / (8.18%)

Risk Measures

Annualized standard deviation of monthly RORs 5.79%
Annualized downside deviation (MAR = RF return of 3% per annum) 3.02%

Sharpe Ratio, annualized (RF rate of return 1.0%)

2.68
Sortino Ratio, annualized (below RF ret. 1%) 5.13

Calmar Ratio (ratio compound average annual ROR to worst intra month drawdown)

4.91
Omega Ratios N/A
Tracking error, relative to the S&P 500 Index, annualized 17.9%
Historic 5-day Value at Risk (VaR); (for 95% and 99% confidence levels)   (1.12%) /  (2.59%)
Alpha relative to the S&P 500 Index, annualized 15.61%
Beta / correlation coefficient, relative to the S&P 500 Index (0.05) / (0.14)
Jensen's Alpha relative to the S&P 500 Index, annualized 15.47%
Active premium, relative to the S&P 500 Index, annualized 16.33%
Information Ratio, relative to the S&P 500 Index 0.78

Worst month-to-month drawdown depth / duration

(3.36%) / Jul-Oct 2009
Worst peak-to-valley, intra month, drawdown (9.74%)

 

Basic Strategy Characteristics
Strategy name FX Index Arb
Type of trading Statistical index arbitrage
Portfolio composition 9 currencies
Margin to equity ratio 5% max
Strategy leverage (long positions value relative to Net Asset Value - NAV)    Avg. 0.8,   max 2.4
How generated Hypothetical / Back Testing
Start of live trading July 2012

Turnover / Cost Parameters

Average positions value, relative to NAV* -
Average daily portfolio turnover (daily traded positions value as a percentage of NAV) -
Annual turnover ratio -
Average holding period -
Average number of R/T transactions (100k FX lots) per $1Million NAV per year -
Average annual transaction costs - bid/ask spreads (deduct from annual ROR) 2.5%
Average transaction bid/ask spread, as a fraction of the transaction value 0.0002

3. Performance Graphs and Histograms

3.1 Monthly Graphs

3.2. Daily Graphs

Risk Disclaimer

THE RISK OF LOSS IN TRADING CURRENCIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION AND INVESTMENT OBJECTIVES. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. TRADING IN FOREIGN EXCHANGE IS SPECULATIVE AND MAY INVOLVE THE LOSS OF PRINCIPAL; THEREFORE, FUNDS PLACED UNDER MANAGEMENT SHOULD BE RISK CAPITAL FUNDS THAT IF LOST WILL NOT SIGNIFICANTLY AFFECT ONE'S PERSONAL WELL BEING. THIS IS NOT A SOLICITATION TO INVEST AND YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTION. PLEASE SEE THE COMPLETE DISCLOSURE DOCUMENT.