It has been a difficult week for Canadian equities adding to an already sluggish year to date for most equity sectors. The Canadian real estate investment trusts (REITs) sector is the only Canadian equity sector that has been doing well. This sector can be invested in through the XRE ETF. Here is a chart showing how a buy and hold (b&h) strategy of investing in the XRE compares with an investment strategy based on a 10 month moving average.
The MA(10) switch portfolio
uses a moving average trend following strategy by comparing monthly
closing prices with a moving average of length ten. Buy or hold the XRE when the monthly close of the XRE is above the 10 month moving average
and sell the XRE and invest in 3 month T bills if the monthly close falls below the 10 month moving average. The chart shows monthly data from July 2003 to March 2012. The moving average trend following strategy outperforms buy and hold.
The risk measures indicate that
the moving average trend following strategy outperforms buy and hold. The average annual return for b&h is 11.20% while the average annual return for the trend following strategy is 14.19%. The trend following strategy has a lower standard deviation, higher Sharpe ratio and lower downside risk. Downside risk is calculated relative to a benchmark of 0.
| |
b&h |
ma10 |
| mean |
11.20 |
14.19 |
| stdev |
16.69 |
11.22 |
| sharpe |
0.19 |
0.37 |
| downside |
12.51 |
7.13 |
No comments:
Post a Comment