Portfolio research
Portfolio Backtesting
Portfolio backtesting simulates how multiple assets and allocation rules would have interacted through time. It measures the combined effect of returns, correlations, rebalancing, costs, and portfolio-level risk.
Model allocation through time
Specify initial weights, rebalancing frequency, cash treatment, constraints, and what happens when data is unavailable. Avoid applying today’s asset universe to the entire history without review.
Correlation is not constant
Diversification observed in calm periods may weaken during stress. Examine rolling behavior, concentration, drawdown, and exposure rather than relying on one full-period correlation estimate.
Account for rebalancing costs
Frequent rebalancing can increase turnover and slippage. Compare gross and cost-adjusted results and use a benchmark with comparable risk and asset exposure.
Research checklist
- Rebalancing rules
- Changing correlations
- Turnover and costs
- Portfolio concentration
Questions and answers
What is portfolio backtesting?
It is a historical simulation of allocation and rebalancing rules across multiple assets, including their combined returns, risks, and costs.