A long/short portfolio formed using our short-term mean-reversion factor -- buying the most oversold 10% of S&P 500 stocks and shorting the most overbought 10% with a weekly rebalance -- shows consistent positive performance.
Our long/short mean-reversion portfolio has increased 194% since 2010. This translates into an annualized return of 10.5%, a standard deviation of 14.1% and a Sharpe ratio of 0.74. This includes a run-up topping 55% over the past six months, as buying the dip since the Covid-19-induced selloff has been handsomely rewarded. The correlation between our long/short mean-reversion factor and equity beta is mildly positive, showing a rolling 52-week average of plus 0.21 over the past decade. #stocktalk
Our long/short mean-reversion portfolio has increased 194% since 2010. This translates into an annualized return of 10.5%, a standard deviation of 14.1% and a Sharpe ratio of 0.74. This includes a run-up topping 55% over the past six months, as buying the dip since the Covid-19-induced selloff has been handsomely rewarded. The correlation between our long/short mean-reversion factor and equity beta is mildly positive, showing a rolling 52-week average of plus 0.21 over the past decade. #stocktalk