Rebalancing weekly into the 10% of S&P 500 stocks with the lowest 20-day z-scores has fueled higher returns over the last 10-plus years, indicating a strong tendency for these stocks to mean-revert higher following relatively large downward price action.
A portfolio comprised of first-decile equities -- the most oversold 10% -- has a cumulative return of 461% since 2010 (annualized return of 17.4%; annualized volatility of 22%; Sharpe ratio of 0.79). This greatly outperforms 10th-decile -- the most overbought 10% -- which shows cumulative returns of 90.7% (6.2% annualized; 17% volatility; 0.36 Sharpe ratio). Systematically buying oversold stocks over the past decade has led to a more-than-double Sharpe ratio, almost triple the annualized return and greater than four times more cumulative money growth. #stocktalk
A portfolio comprised of first-decile equities -- the most oversold 10% -- has a cumulative return of 461% since 2010 (annualized return of 17.4%; annualized volatility of 22%; Sharpe ratio of 0.79). This greatly outperforms 10th-decile -- the most overbought 10% -- which shows cumulative returns of 90.7% (6.2% annualized; 17% volatility; 0.36 Sharpe ratio). Systematically buying oversold stocks over the past decade has led to a more-than-double Sharpe ratio, almost triple the annualized return and greater than four times more cumulative money growth. #stocktalk