Relative performance measure vs S&P 500 benchmark

C2
1

I’m sure this is probably a statistic that has already been considered which is why C2 models have S&P 500 returns on their graphs for comparison.

Are there any plans to add a measure for model over/under performance vs S&P 500 to give a better measure of a model’s potential alpha regardless of when the model was started (beginning of bull vs beginning of bear market for example)? It would be incredible if this was a Grid filter as well.

Or is this already being measured and I am somehow missing it?

2

Hi, Bryan:

We have often been asked to allow users to track strategy performance versus other indexes, and not solely the S&P500 (the current benchmark we use for benchmarking all strategies). I plan to tackle this request, hopefully sooner rather than later.

But I am also interested in your suggestion that we

add a measure for model over/under performance vs S&P 500 to give a better measure of a model’s potential alpha regardless of when the model was started

Is there a specific methodology that you recommend we use (and if so, can you point me to a detailed description of it somewhere online), or is this just a general request that you want me to investigate?

If any C2 Members with a mathematical/statistical bent want to suggest specific methodologies for comparing versus indexes, please chime in, either here or privately.

Thanks.

-Matthew

3

Matthew,

It would be very helpful to add an extra line to the monthly results for the S&P 500 index. Then we can easily compare the monthly and annual results of every trading system with the S&P 500 index.

It may be overkill, but you could add a third line for the monthly and annualized difference between the trading system results and the S&P 500 index.

Thanks!
Jim

4

Hi Matt,

It was more of a general request, but this is how I would approach it if it helps at all. Please forgive me if my suggestion is just a bunch of stuff you already know. I’m sure you know how to calculate CAGR, haha.

C2 already calculates annualized return numbers which is probably just (system current value / system beginning value) ^ (1 / (system age in days / 365)) - 1 with calculations for fees worked in. All I would do is replace “system beginning value” in the formula with “S&P 500 (or other selected benchmark) current value”. This would assume the benchmark value is based on the same beginning value being used for the system and benchmark which you guys already do because it just makes sense.

So for example, let’s say my system started 100 days ago with $10,000 beginning value and returned -1% over that time frame while the benchmark returned -5%. The measure for relative over/under annualized performance would be ($9,900 / $9,500) ^ (1 / (100 / 365)) - 1 = 16.25%. So even though my total return is negative, people can see that my system has been outperforming the benchmark at a rate of 1,625 basis points per year. And vice versa, this number would be negative if my system returned +1% but the benchmark returned +5%.

Thanks,

-Bryan