Transaction costs were simulated at 25 basis points of slippage and commission for
the combined entry and exit of each position. This figure was chosen based on con-
temporaneous reports of actual institutional stock transaction costs (including market
impact) published by ITG and other brokers.
6.7.3 Performance
The portfolio performance relative to the S&P 500 is shown in Figure 6.14. It had an
annualized Sharpe ratio of 0.76 after transaction costs. It showed extreme volatility
between October 2008 and July 2009, but also performed extremely well in that period.
The maximum drawdown was about 60%, and occurred between February and July
2009.
6.7.4 Monthly performance
The strategy was profitable in 24 out of 46 months, or about 52% of the time (details are
in Figures 6.15 and 6.16).
Relating news analytics to stock returns 165All months Winning months Losing months% (number of months) 100% (36) 52 %(24/46) 47.8%(22/46)
95% CI for returns 43% to 48% 0% to 63% 48% to 0%
Mean monthly return 1.74% 11% 8.7%Figure 6.15.Extreme sentiment simulation, monthly summary.
Figure 6.16.Monthly performance of the RNSE Extreme Sentiment Day strategy. Black bars are
months showing a profit and grey bars are months showing a loss.