Comparison of the Performances for Mean Revision Strategy Based on Three Underlying Assets

Abstract

The predictability of funds returns has always been a hot topic in academic circles. Relevant scholars have carried out a lot of empirical studies and found that funds prices tend to revert to the mean after rising and falling for a while. In view of the fund long-term return forecast problem, this study investigates the performances of three underlying assets, i.e ., ZhongOu Medical And Health Hybrid A, Fullgoal China Securities New Energy Vehicle Index (LOF)A, and ZhongRong Securities Coal Index. To be specific, this study starts with introducing theory for mean reversion. Three analytical metrics were adopted for quantitative analysis: Sharpe Ratio, Mean-Variance and Price Discovery. Based on the evaluations, the mean-reverting of stock returns is estimated from both theoretical and empirical perspectives. Besides, the performances for the mean revision strategy are compared. According to the analysis, stock prices tend to revert after rising and falling for a while; therefore, the mean reversion phenomenon in the track stock is more obvious. These results indicate that the mean reversion is suitable for higher market maturity. These results shed light on guiding further exploration of choosing appropriate investing time and strategy.