backtest_allocation {AssetAllocation}

Backtesting of asset allocation strategies

Description

backtest_allocation computes a backtest of a given portfolio allocation rule.

Usage

backtest_allocation(strat, P, R, risk_free = 0, start_date = NULL)

Arguments

strat

A list representing an asset allocation strategy.

P

An xts object with daily prices of the tickers in strat.

R

An xts object with daily returns of the tickers in strat.

risk_free

Either an xts object with daily returns of the risk-free asset, or a scalar numeric with the annual risk-free rate in decimals.

start_date

Optional starting date

Details

The function first determines the rebalancing dates based on strat$rebalance_frequency. Then, it cycles through intermediate dates and calculates daily returns based on the allocation. If the optional parameter start_date is provided, the backtest will start on that date. Otherwise, it will start from the date from which data on all assets becomes available.

Value

An object of class "List" with the following elements:

strat

The strat provided to the function

returns

An xts object with the daily returns of the strategy

table_performance

A table with performance metrics

rebalance_dates

Vector of rebalancing dates

rebalance_weights

Vector of rebalancing dates

Examples

# Example 1: backtesting one of the asset allocations in the package
us_60_40 <- asset_allocations$static$us_60_40
bt_us_60_40 <- backtest_allocation(us_60_40,
                                  ETFs$Prices,
                                  ETFs$Returns,
                                  ETFs$risk_free)

# show table with performance metrics
bt_us_60_40$table_performance
# Example 2: creating and backtesting an asset allocation from scratch

# create a strategy that invests equally in momentum (MTUM), value (VLUE),
# low volatility (USMV) and quality (QUAL) ETFs.

factor_strat  <- list(name = "EW Factors",
                      tickers = c("MTUM", "VLUE", "USMV", "QUAL"),
                      default_weights = c(0.25, 0.25, 0.25, 0.25),
                      rebalance_frequency = "month",
                      portfolio_rule_fn = "constant_weights")

# get data for tickers using getSymbols
factor_ETFs <- get_data_from_tickers(factor_strat$tickers,
                                     starting_date = "2020-01-01")
# backtest the strategy
bt_factor_strat <- backtest_allocation(factor_strat,
                                       factor_ETFs$P,
                                       factor_ETFs$R)
# show table with performance metrics
bt_factor_strat$table_performance