How do I short the weakest tickers in a list?

[David S]

I have constructed a list of tickers in QT following the instructions in https://logical-invest.com/quanttrader-application/backtesting-software-tutorial/

Selecting the top N highest ranked tickers works as expected and desribed in the tutorial. As a further step, how can I set up a short portfolio though? I’d like to short the M weakest tickers in a list.

I can select “short” but it appears to be shorting the strongest tickers which is a bit counter-intuitive.

[Frank1 Grossmann]

You can use the parameters “Mean reversion weight” and “Mean reversion period %” to invert the performance of the stocks. Set “Mean reversion period %” to 100% so that it uses the full lookback period and now you put the “Mean reversion weight” to -200% which means that it substracts 2x the performance from the performance.
This way +2% will be +2% – 4% = -2% and -2% + 4% = +2%. This way the worst stock will be on top and you can do a normal ranking and buy or short these bad stocks. I am not sure however that it works well as these stocks could do big upward jumps because of mean reversion.

Regards Frank

[David S]

Thank you, Frank, that works as you described.

[math_champ]

Hi Frank, I wanted to check, does the “Mean reversion weight” apply to the returns only, or is it taken into consideration as well when calculating the volatility?

[Frank1 Grossmann]

It only applies to the returns. Volatility stays the same. To inverse sort order insert -200 Mean reversion weight (100-200=-100) and 100% Mean reversion period

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