Rebalancing with the Conservative Formula

Originally @: https://www.backtrader.com/blog/2019-07-19-rebalancing-conservative/rebalancing-conservative/

The Conservative Formula approach is presented in this paper: The Conservative Formula in Python: Quantitative Investing made Easy

It is one many possible rebalancing approaches, but one that is easy to grasp. A summary of the approach:

• x stocks are selected from a universe of Y (100 of 1000)

The selection criteria are

• Low volatility
• High Net Payout Yield
• High Momentum
• Rebalancing every month

With this in mind let’s go and present a possible implementation in backtrader

The data

Even if one has a winning strategy, nothing will be actually won if no data is available for the strategy. Which means that it has to be considered how the data looks like and how to load it.

A set of CSV (“comma-separated-values”) files is assumed to be available, containing with the following features

• ohlcv monthly data
• With an extra field after the v containing the Net Payout Yield (npy), to have an ohlcvn data set.

The format of the CSV data will therefore look like this