I am new with Quantopian and Python in general. I have tried to rewrite the fairly simple strategy below. What I don't understand is why the return is so negative in the backtest. The aim is to make it pick firms with a market cap larger than 1 000 000 000, a ROIC larger than 10%, revenue growth larger than 0 and then pick the 20 firms with the lowest EV/EBITDA. Does anyone have suggestions on what could be added to enchance the performance?
Thank you
Well at first you forgot to assign your market cap filter to 'my_mask'
Also, I am not sure what you are looking for with EV/EBITDA. This metric is highly sensitive to the sector you are trading (as many ratios). If you filter the whole tradable market by this metric, you will most likely exclude some sectors.
A low EV/EBITDA implies a low growth business. So filtering with the bottom 20 excludes growth company. I am pretty sure you were aiming to buy business from a value perspective . The low growth, mature sector as terribly underperform the high growth sector in the last 2 decades stock price-wise. So that might explain why your return is pretty low compared to the market.
I hope it helps you
Hi Cedrik. Thanks a million! That intuition explains exactly why my results are so poor. I guess I also need to spread the portfolio over more sectors, although its hard with the coding.
Could I ask you, if I would like to remove the EV/EBITDA rank and instead rank the 20 companies with the lowest P/B ratio or Book to market ratio, can it simply be added to the 'define my pipeline' parts?
Best regards
Jonas
Hi Jonas,
You can apply any filters to your tradable stock in your pipeline. It is actually the goal of the game :p, find what creates Alpha; what factor gives the best result.
Again, P/B is highly sensitive to the sector of the company. For example, going Long with the lowest P/B will most likely exclude all the Tech sector. Your algo will lag the market. Also, think about: Why go with the lowest P/B?
Good luck
Cedrik
Hi Cedrik. Thanks alot! The problem for me is that im very bad at coding, which is why I ask all these bad questions ;7.
If I would like the algorithm to buy stocks in sectors I choose, how could I add that in the easiest way possible?
Would appreciate it greatly if you could help me or steer me in the right direction.
Best regards
Jonas
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