Strategy Ranking

We define the ranking methodology to evaluate a trading strategy.

1 - Introduction

We need to be able to evaluate the performance of a strategy against thousands of assets and be able to give some insight into these strategies and how they perform on various classes of assets etc.

Before going further let’s define some terminology:

• Asset: any tradable financial instrument. Most commonly it will be a stock but it can also be any other assets such as bonds, crypto-asset, swaps, options etc.

• Trading Strategy: a trading strategy is a set of rules that define when to buy and when to sell an asset. For example, a trading strategy could consist of two rules: one for buying (if the price of the asset goes below a certain level buy) and a selling rule (if the price of the asset goes above a certain level sell).

• Trading Order: Action of selling/buying an asset on the financial market.

• Portfolio: A set of assets that you own.

2 - Ranking Methodology

This first methodology is only based on the performance of the strategy against the performance of the asset on which the strategy is tested and will need to be improved in the future by taking into account risks.

The ranking methodology lies in the rolling comparison of the performance of the underlying asset with the strategy’s performance over a certain time period.

The idea here is to get a notation as follows:

• Perf (Asset) < 0 & Perf (Strategy) > 0 → 5/5

• Perf (Asset) > 0 & Perf (Strategy) > 0 & Perf (Asset) < Perf (Strategy) → 4/5

• Perf (Asset) > 0 & Perf (Strategy) > 0 & Perf (Asset) > Perf (Strategy) → 3/5

• Perf (Asset) < 0 & Perf (Strategy) < 0 & Perf (Asset) < Perf (Strategy) → 2/5

• Perf (Asset) < 0 & Perf (Strategy) < 0 & Perf (Asset) > Perf (Strategy) → 1/5

• Perf (Asset) > 0 & Perf (Strategy) < 0 → 0/5

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