The methodology for the backtesting is a 3-month buy and hold strategy.The test is run for 5 years, ending on the most recent Friday.So for example, a test run on April 27, 2011 will run for the 5 year window starting Friday April 28, 2006 to Friday April 22, 2011.It will run its first screen for Friday, April 28, 2006, hold the matching instruments for 13 weeks, rebalance on Friday, July 28, 2006, hold those for 13 weeks, rebalance on October 27, 2006, etc. Here is a breakdown of the process:
- At the beginning of the test period, the top 10 matching instruments are selected (or as many as match, if the number is less than 10). The beginning of the test window being 5 years prior on the Friday.
- A position is taken in each instrument, at a uniform distribution of available funds. Since all returns are measured in terms of percentage return, the total value of this initial pool is arbitrary.
- The instruments are held for 3 months (13 weeks), with the performance of the pool measured on weekly intervals for reporting purposes.
- At the end of 3 months, on the Friday, the instruments are deemed sold at the closing price.
- The process is repeated with a new set of instruments, distributing the total worth of the instruments from the previous period across the newly selected instruments (and so on), for the duration of the 5 year test period. There are no stops or any other adjustments to the instruments selected between rebalancing periods.