Strategy Library

Mean Reversion Effect in Country Equity Indexes

Introduction

Mean reversion in stock price is the assumption that the price will tend to move back to the average price over time. Mean reversion trading often refers to counter-trend or reversal trading. This algorithm will explore the mean reversion effect in country equity indexes.

Method

The investment universe consists of 19 ETFs which invest in individual country equity indexes. The strategy is going to long on the bottom four countries with the worst 36-month return and short on the top 4 countries with the best 36-month return. The helper indicator method self.ROC(symbol, period, resolution) is used to calculate 36-month return where the resolution is daily and the period is 36*21.

The portfolio is reweighted every three years. We schedule the event to fire every month. self.months is the variable to save the number of months, and the algorithm jumps the rebalance execution if the amount of passed months does not equate to 36.

Algorithm

Source

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