After reading about John Orford's Simplest Mean Reversion Strategy and Simplest Momentum Strategy, I decided to take a look at how the S&P composite would react going back to 1950 (as far back as I could pull daily index returns... note these exclude dividends, thus are not total returns).
The rules are simple
- Daily Mean Reversion: if the previous day was positive, go short; if the previous day was negative, go long
- Daily Momentum: if the previous day was negative, go short; if the previous day was positive, go long
Performance Results (excluding any transaction costs / ignoring dividends)
- From 1950 - 2000 (50 years is a HUGE sample size), daily momentum compounded at a 22% annual rate, while daily mean reversion went straight to 0, losing nearly -20% per year.
- Since 2000, daily momentum has lost -18% per year, while daily mean reversion has compounded at a 17% clip.
Source: S&P
