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Should you’ve been buying and selling or investing for some time, you understand how difficult it may be to stability threat and reward. Equities are nice for progress however can hit you onerous when there’s a panic available in the market. Gold, then again, is regular however received’t get your portfolio racing. However what for those who might get the perfect of each worlds by switching between them on the proper time?
I just lately examined a Twin Momentum Buying and selling Technique with Niftybees and Goldbees ETFs, utilizing ChatGPT to backtest it over 14 years. The consequence? A complete return of 1221.50% with a max drawdown of simply -23.51%. Right here’s the breakdown of how this technique works and why it’s one thing each investor ought to contemplate.
Why Mix Fairness and Gold?
Most of us know that equities and gold are just about on reverse ends of the chance spectrum. When the inventory market tanks, gold normally steps up because the “secure haven” for buyers. Equities like Niftybees can skyrocket however are inclined to large drawdowns.
In distinction, Goldbees tends to remain regular, providing you with stability when equities are risky.
So, why not mix the 2 and rotate between them primarily based on momentum?
Right here’s How the Technique Works:
The foundations are tremendous easy, and that’s why I prefer it.
Each quarter, test the final three months’ returns for Niftybees and Goldbees.
If Niftybees is outperforming, put your cash in Niftybees.
If Goldbees has higher returns, change to Goldbees.
Rebalance on the finish of each quarter primarily based on which asset is performing higher.
This manner, you’re all the time within the asset that’s exhibiting the strongest momentum.
What Did the Backtest Present?
I used ChatGPT to backtest this technique utilizing EOD information for Niftybees and Goldbees during the last 14 years. Right here’s what the information confirmed:
Twin Momentum Technique (Niftybees & Goldbees Mixed):
CAGR: 16.06%
Whole Return: 1221.50%
Max Drawdown: -23.51%
CAGR: 11.93%
Whole Return: 625.76%
Max Drawdown: -55.15%
CAGR: 11.43%
Whole Return: 570.93%
Max Drawdown: -24.38%
The Momentum Technique clearly outperformed buy-and-hold when it comes to each return and threat. What actually caught my eye was the a lot decrease drawdown. Whereas holding Niftybees by means of the 2008 crash would’ve given you a coronary heart assault with a -55% drawdown, this momentum technique solely had a drawdown of round -8%.
Danger-Adjusted Returns: Sharpe Ratios
Should you’re the kind who likes digging into threat metrics, listed below are the Sharpe ratios for every technique:
Momentum Technique (Niftybees & Goldbees Mixed): 0.95
Niftybees Purchase-and-Maintain: 0.41
Goldbees Purchase-and-Maintain: 0.47
The upper the Sharpe ratio, the higher the return per unit of threat. And guess what? The momentum technique blows the opposite two out of the water, nearly doubling the Sharpe ratio of Niftybees buy-and-hold.
Right here’s the yr on yr returns, momentum technique has constantly made higher returns. In final 14 yr, solely as soon as momentum technique has made adverse returns. This clearly reveals how we are able to stabilise the portfolio from excessive drawdown by diversifying with one other asset class.
What Occurs if We Exclude Goldbees?
I used to be interested in how the technique would carry out if I excluded Goldbees and simply held money when Niftybees was underperforming. So, as a substitute of switching to gold, I attempted sitting in money (or liquid funds) when gold was doing higher. Right here’s what I discovered:
Whole Return: 409.15%
Max Drawdown: -13.78%
Whereas the drawdown was smaller, the overall return didn’t even come near the Twin Momentum Technique that included each Niftybees and Goldbees. Clearly, gold performs a important function in smoothing out these tough market durations.
And Right here’s the Finest Half—No Code Wanted
All of this was executed with out writing a single line of code. I merely used ChatGPT, uploaded the information, and gave it a immediate to carry out the backtest. Inside seconds, it generated all the required outcomes, exhibiting how efficient this straightforward technique might be.
This proves that you simply don’t want difficult instruments or coding abilities to check and implement strong buying and selling methods. Typically, simplicity wins. Should you’re excited by diving deeper into this idea, I extremely suggest studying Gary Antonacci’s e-book on Twin Momentum. He explains the logic behind the technique intimately.
Closing Ideas
Whether or not you’re an skilled dealer or somebody who prefers a extra hands-off strategy, this technique presents the perfect of each worlds. You’ll be able to shield your capital throughout downturns whereas nonetheless capturing sturdy upside momentum when the market is in your favor.
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