The Thesis
The mean-reversion strategy is straightforward by design: buy when RSI drops below 30 (oversold) and sell when RSI climbs above 70 (overbought). It operates across a 24-symbol universe of large-cap US equities spanning tech, financials, healthcare, consumer staples, and energy — names like AAPL, NVDA, JPM, JNJ, and XOM. The bet is that short-term price dislocations in liquid, well-covered stocks tend to snap back, creating exploitable edges without needing to forecast direction.
Backtest Performance
Over 451 days, the strategy executed 38 paper trades and returned +14.73% — a CAGR of roughly 7.98%. The win rate of 70.6% stands out: nearly three in four trades closed in profit, which is unusual for a systematic strategy and suggests the RSI thresholds are well-calibrated to this universe.
The Sharpe ratio of 0.58 is modest but positive. The maximum drawdown of 15.64% is the number that demands attention — for a strategy trading large-cap names with relatively infrequent signals, that peak-to-trough loss is on the wider side. High turnover (879%) also implies meaningful transaction-cost sensitivity; the backtest charged a flat $1/trade in fees, but real-world slippage on momentum-exhaustion entries could erode edge further.
Validation: Where It Gets Complicated
The cross-validation picture is mixed. Across four time folds, three posted positive returns — but the pattern is not encouraging:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +2.06% | 0.57 | 4.24% |
| 2 | Jan 2025 – Jul 2025 | +11.10% | 1.32 | 10.53% |
| 3 | Jul 2025 – Dec 2025 | +2.21% | 0.46 | 8.80% |
| 4 | Dec 2025 – May 2026 | −2.84% | −0.33 | 14.96% |
Fold 2 is the outlier that flatters the aggregate: a single six-month window accounts for the bulk of total returns. Strip it out and the strategy barely keeps pace with cash. The most recent fold — out-of-sample by design — returned −2.84% with a Sharpe of −0.33, which is what triggers a validation failure.
The probabilistic Sharpe ratio (PSR) sits at 0.785, meaning there is roughly a 78.5% chance the true Sharpe exceeds zero — reasonable, but not the ≥0.95 confidence we'd want before committing live capital. The deflated Sharpe ratio (DSR) of 0.304 adjusts for multiple trials (6 were run) and lands well below threshold, reflecting genuine multiple-comparison risk.
Validation verdict: failed. The strategy is live in paper-trading mode but not cleared for real capital allocation.
Recent Activity
The strategy's last executed trade was a buy of 21 shares of WMT at $115.75 on May 31 — Walmart going oversold briefly before the current sideways drift. Since then, six consecutive daily runs (June 11–18) have produced zero executions. With $7,569 in cash against a $10,032–$10,108 total equity range, the portfolio is sitting ~75% idle. No signals are firing, which is consistent with a broadly overbought market offering few RSI-dip entry points in this blue-chip universe.
Strengths and Risks
Strengths: High win rate, clean logic that is easy to audit, and meaningful coverage across sectors. The strategy is patient — it doesn't force trades.
Risks: Performance concentration in a single fold, a deteriorating most-recent period, high turnover sensitivity, and a drawdown profile that could test a live investor's conviction during a trending (not mean-reverting) market regime. RSI-based strategies are known to underperform during sustained momentum runs, and the Dec 2025–May 2026 fold may reflect exactly that dynamic.
We will continue monitoring in paper-trading mode. Validation will be re-run as new price data accumulates through the next fold boundary.