This algorithm is converted from Rob Reider Enhancing Short-Term Mean-Reversion Strategies.

Universe selection is implemented each month. In coarse universe selection, stocks with the price lower than 5 or without fundamental will be dropped. Then the top 50 stocks ranked by the dollar are selected. Fine universe selection picks the stocks with the positive EV to EBITDA in those top 50.
Those stocks are sorted into quintiles based on five-day returns(here mean reversion period is 5 days). The long and short stocks are filtered by the extreme momentum. The equally weighted portfolio is rebalanced daily at the close. Stocks were liquidated when they dropped out of the extreme quintile.

There are three enhancements in this algorithm:

  1. skip the most recent day when computing the five-day mean reversion return.(compute returns from five days ago up to the previous day’s close)
  2. Trade the stock with low volatility (volatility is sorted into trisection to filter the low volatility stock)
  3. The velocity of the benchmark is used to control the leverage (The algorithm is long unless SPY has a low enough velocity) - enhancement from Jacob Shrum

The cumulative return over the entire backtesting period from 2006 to present was about 680% and the Sharpe Ratio was 0.674.