Backtesting is a critical component of developing and evaluating investment strategies. It is the process of testing a trading strategy on historical data to see how it would have performed under various market conditions. By conducting backtesting, investors can see how their strategy would have performed in the past and make better-informed investment decisions in the future.
What sets the JAVLIN optimization strategies apart is that it optimizes its portfolio every year. Unlike other optimization strategies, which optimize only once, JAVLIN Invest’s approach re-optimizes its portfolio every year. This theoretically results in a more accurate portfolio, as the portfolio is optimized for current market conditions. Additionally, for the JAVLIN Strategy optimization, a completely different basket of stocks is optimized every year, mitigating survivorship bias. This is important because survivorship bias occurs when only successful stocks are included in a test portfolio, and unsuccessful ones are excluded, which can lead to an overestimation of portfolio returns.
As you can see in the backtesting chart below, JAVLIN Invest’s optimized portfolio (purple line) outperformed the equal-weighted portfolio (teal line) over the testing period. This demonstrates the potential benefits of portfolio optimization.
It is important to note that our other optimization strategies such as EVA, Min Vol, and Max Sharpe strategies also re-optimize the portfolio every year. However, the difference is that these strategies use the same user-defined inputs for optimization in every year. In contrast, the JAVLIN Strategy focuses on optimizing a different portfolio every year, taking into account the current market conditions. This sets JAVLIN Invest’s approach apart from the others and highlights its uniqueness in providing users with a more accurate representation of the overall market.
JAVLIN Invest’s backtesting is a valuable tool for investors seeking to evaluate their investment strategies. By re-optimizing its portfolio every year and mitigating survivorship bias, it provides users with a more accurate and up-to-date assessment of investment performance.