Efficiency of Trading Strategies in Portfolio Optimization

Abstract

This study investigates three commonly used methods for timing stock trades and assesses their performance over a decade. The advent of new technologies has sparked a surge in the development of diverse trading strategies tailored for investment portfolio management. Nevertheless, the suitability of these strategies for portfolio integration varies, and some may yield adverse outcomes. For instance, a speculative trading approach might lead to significant losses. Using data spanning ten years, we evaluate the effectiveness of three main trading strategies that identify when stocks are likely to rise or fall, considering metrics such as return rate, Sharpe ratio, and maximum drawdown. Additionally, we explore potential improvements and the optimal scenarios for applying each strategy. Through this comprehensive analysis, our goal is to offer insights into how these strategies perform and when they're most effective. This information can be valuable for undergraduate-level investors in making informed decisions about managing their investment portfolios.