ALTERNATIVE INVESTMENTS
FRE-GY 6921
SPRING 2025
Homework 2
Due by Sunday February 16th
TRADING STRATEGIES
Consider the daily opening and closing prices of SPY (S&P 500) starting January 2nd, 2022until September 20th, 2024. You can download the prices from Yahoo Finance.
You have $100,000 capital to start with. For each trade the size of your trade in absolute terms should be as close but not more than the available capital at the time of the trade
1. Mean Reversion Strategy
Consider the following strategy
If Si-2 > Si-1 > Si buy SPY at the open on day i+1 and sell it at the closing price of that day.
If Si-2 < Si-1 < Si sell short SPY at the open on day i+1 and buy it back at the closing price of that day.
Do nothing otherwise
For this strategy:
a) Plot daily Profit & Loss (P&L)
b) Plot cumulative P&L
c) What is maximum daily draw down
d) For days that you have traded, what is the mean and standard deviation of your return (annualized)
2. Momentum Strategy (Trend following)
Consider the following strategy
If Si-2 > Si-1 > Si sell short SPY at the open on day i+1 and buy it back at the closing price of that day.
If Si-2 < Si-1 < Si buy SPY at the open on day i+1 and sell it at the closing price of that day.
Do nothing otherwise
For this strategy
a) Plot daily Profit & Loss (P&L)
b) Plot cumulative P&L
c) What is maximum daily draw down
d) For days that you have traded what is the mean and standard deviation of your return (annualized)
3- Do the above for Nvidia (NVDA)