Market timing model back-testing and optimization

Alpha Asset Allocation investment strategy was developed based on sector rotation model and bear market protection mode. In this post we will review the back-testing optimization results of the market timing model (also called bear protection model). You can read more about our optimization process and how we avoid over fitting in the Sector rotation model back-testing and optimization post.

The market timing model purpose is to get us out of the market (and into safe treasuries) in case of major bear market (ex: 2008 housing crises) and protect us from losing big chunks of our equity. So for testing this model we will use the Max draw-down result as a proxy for successful timing.

We alter the market timing model parameters (PARAM1 and PARAM2) the results measured by MAX SYSTEM DRAWDOWN%  does not show strong drift and remain within the range of 16.7% - 20.5% .

The low drift of the results is thanks to the adaptive nature of this model.