Strategies · Library · Futures
§10.3Mean reversion
Contrarian trading (mean-reversion)
Compare each future with the equal-weighted average over the last week, buy the underperformers and sell the outperformers, optionally scaled by volatility.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Futures
- Held for
- Weeks
- Data
- ARCANE has the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Return minus the universe average over a week.
- Entry and exit
- Rebalance weekly.
- Sizing
- Weights proportional to minus the relative return.
How it fails
- Trends persist
- Transaction costs
- Short leg
Data it needs
- daily futures prices
Front-month future closes available.
How ARCANE uses it
A Call on a bounce could cite a one-week laggard.
Builds as a long-only proxy. Long-only: hold the weaker of two futures over a week, no shorts.
Filed under the mean reversion card
Buy last week’s biggest losers and sell last week’s biggest winners, betting that short, sharp moves partly undo themselves.
A paper plan from this card holds 1 to 10 days, stops at 1× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §10.3, p. 96 of the SSRN version. Described in our words. Mean reversion is ARCANE’s filing, not the book’s.