Quant Tools and Backtesting

Hi, everyone Changsheng here.

Today, I'm going to show you guys how I look at some particular investments and the statistical analysis tools I utilize to make these trades and the quant platforms I backtest from. (Not all investments I make are through technicals or statistical analysis). 

First, let me introduce some platform that I usually use for backtesting. A lot of them are based on Python and Java Language. If you are already familiar with any coding language it should be user friendly to that  If you don't know any of those Lagrange, don't worry, I don't know at the beginning too. They are not too hard to learn it from yourself. ps: I swear I didn't receive any advertising fees from any of the people.

1. RiceQuant. I'm currently using this for the Chinese market.

Advantage:

• It supports Python and Java language.
• It has really detailed information for Chinese stocks and companies. Based on that you can write some strategies base on Fundamentals.
• It has a good community, people are nice etc.
• They held some competition for time to time, you can join and win cash bonus, work opportunity, or funding.
• It can connect your phone and remind you to follow your strategy.

Disadvantages:

• No English! No English! No English! (Important things say it three times)
• Don't support other markets besides Chinese market.

2. Quantopian. It looks almost the same with Ricequant but in English. 

Advantage:

• Like I say it is a parent platform of Ricequant, so the advantage is pretty much the same besides this is for other market and it is in English.
• Oh, and it has really good tutorials teach you how to use it.

Disadvantages:

• Not supporting Chinese market.

3.Multicharts. 

Advantage:

• It supports Chinese and English.
• It supports the different market.
• It supports live trade.

Disadvantages:

• Not all the version are free
• Personal I don't like the look of it, so I didn't use that much.

4.Matlab. Yeah, that is right, Matlab, it is pain in the ass for a lot of finance student.

Advantage:

• Good extensibility.
• High operation speed.
• Can adapt to a lot of sources.

Disadvantages:

• Too~ extensibility, you need to build up everything before backtesting.
• Adapt to a lot of sources, you have to identify the sources.
• Original version is not free, but there are a lot cracked version (I don't recommend you use cracked software)

Besides all the tools I have mentioned above, there still a lot of other out there, you guy can go look for yourself.

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So after all the tools, let's get into what should we buy in this time period.

First, let me put up some chart. It is back testing chart from Ricequant.

Good Financial statement, Big capital

Good Financial statement, small capital

Bad Financial statement, no capital limit

Note

For first two charts: 

1. Rank all the stocks with low PE, low PB, high cash flow and high undistributed profit. 
2. Separate stock with big capital and small capital.
3. Buy in 10 highest financial rank stock in each group and hold, Rebalance every month.

For last charts:

1. Buy in 10 lowest financial stocks in all the market with no capital limit.

Chart break down:

All chart is from 07/01/16 to 07/19/16.

Graph on top

Blue line is Shanghai and Shenzhen 300 index (kinda like S&P 500)

Red line is the return of the portfolio.

Orange line is how much the excess income of the portfolio compare to the benchmarks index.

In middle, Green and the red bar is how much the net worth change of the portfolio.

At the bottom: the Red bar is how much that day buy. The green bar is how much it sells.

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Analysis:

Compared First and the second graph with third, we can see that no matter it is a big capital or small capital company Financial status is alway the most important thing should be looking for.

Also, let's look into third graph itself, we can see, the bad financial state company is always doing badly even when the market has growth almost 20% a year.

Conclusion one: Don't buy any stock that has bad financial status, even they say they have found a new business, running a big project or whatever. Cause for the long turn you won't make any money. Remeber you are investor, not VCs

Compared First to the second graph, we can see that small capital stocks have a better return than big capital stocks, as long as it is a good company.

I think for Big Cap Company, even their financial status is doing good, it is harder to make a big cap company stock price go up than a small cap company. Because in other to make a company that worth 10 billion increase 10% Need more money than making a company only work few buck to growth 10%.

Conclusion two: Buy in the small capital company has a better chance to have good return, only if they have similar financial status.

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So at the end, let me recommend a few high-quality small capital in Chinese market right now.

And hope we meet soon in the future.

• Chang Chun Eurasia Group Co. Ltd Ticker: SHA600697
• Jilin Expressway Co., Ltd Ticker: SHA601518
• Jiangsu Lianfa Textile Co., Ltd Ticker: SHE002394

Next post probably is about how to apply quantitative trading on Fundamental Investment.

Disclaimer:
All the information is collected online.
All investments involve risk, including loss of principal. Past performance does not guarantee future results. There is no assurance that the investment process will consistently lead to successful investing. Asset allocation and diversification do not eliminate the risk for experiencing investment losses.
All the recommendations are base on personal experience, I'm not responsible for any action taking based off of my recommendations.