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Why portfolio backtesting

I have been wondering what is the rationale for backtesting a portfolio before investing in it, when the Darwins in the portfolio are not yours and do not manage them and have no guarantee that their strategies will remain the same.

I would be grateful if anybody could provide an answer, or just point at an explanation somewhere else on the website. It’s probably obvious, but I cannot see the logic to it, unless the assumption is made that the strategies are going to remain the same.

The only convincing reason I found is customer relations: potential investors can have more realistic expectations if they simulate a few portfolios and backtest them. (I got this explanation from this other post.)

Even if you were certain that the strategy is the same there is no guarantee that it will perform in the future.
Even if the strategy remains the same the behaviour of the market will change and so the result.
With a backtest you are just combinig past performance, there is no magic.
The predictive power of past performance is very low, if you combine more performances the predictivity won’t imporve.
A portfolio of darwins is just like a portfolio of stocks, it makes sense only to preview the reduction of risk due to diversification.

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Thanks very much, that’s what I thought.

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My previous post was about backtests in general.

The darwin backtesting tool is useful also to evaluate the impact of performance fees, management fees and divergence.

You can backtest also a single darwin to have the real net (past :wink: ) result.

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Thanks very much again!

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This the official portfolio backtest provided by Darwinex in this page
https://www.darwinex.com/investors/darwins-performance

The point is that it has not been created 2 years ago but on 14/02/2020 , so ~ 6 months.
You can press “advanced backtest” and verify that the forward performance is negative.

Keywords:

  1. past luck
  2. hindsight
  3. survivorship bias
  4. selection bias
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A very useful reply as ever. Thank you for being so helpful.

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