FactorSage

Backtesting · Lesson 3.7

Reading backtest results

A backtest produces several headline numbers. Looking at any of them in isolation is the fastest way to fool yourself.

Headline metrics

  • CAGR — the annualised growth rate of the portfolio over the period.
  • Max drawdown — the largest peak-to-trough decline you would have lived through.
  • Benchmark comparison — how the strategy performed versus a passive benchmark over the same period.
  • Exposure — how much of the time the strategy was actually invested versus in cash.
  • Trade count — too few trades and the result is luck; too many and the strategy may be overfitted.

Questions to ask

  • Did the strategy beat the benchmark on a risk-adjusted basis, or just because it took more risk?
  • Is the drawdown one you could realistically have held through?
  • Did most of the return come from one short window, or was it consistent?
Open Backtests

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