One of the most powerful tools for effective portfolio management is portfolio backtesting. This process allows you to backtest asset allocation strategies by simulating their performance using historical market data. By analysing past performance, you gain invaluable insights into potential future outcomes. Backtesting your investment portfolio is essential for crafting robust investment strategies, enabling you to quantify risk, optimize portfolio asset allocation, and anticipate performance based on historical market trends.
The Importance of Portfolio Backtesting:
What is portfolio backtesting? It’s a method that provides an objective lens to evaluate and refine your investment strategy. By using a portfolio backtesting tool, you can make informed decisions, reducing the probability of unexpected losses. How to backtest a portfolio? By using historical data to simulate returns and measure performance metrics such as risk-adjusted returns and volatility.
Diversiview: Your Portfolio Backtesting Platform
Diversiview is a portfolio optimisation tool with portfolio backtesting that enables you to backtest your portfolio asset allocation for the past three years. Compare your strategy with:
- An optimized asset allocation
- An equal asset allocation
- Major indices, including XAO (All Ords) and XJO (S&P ASX200). We are expanding to include US indices soon.
Example: Equal Allocation vs. Optimised Allocation vs. Market Index
See an example below where a portfolio of stocks and ETFs with equal allocation (list below) demonstrates the benchmarked performance between the original (equal) allocation, an optimal allocation, and the XAO (All Ords Australian Index).
- ACDC – Global X Battery Tech & Lithium ETF
- LIT – Lithium Australia Ltd
- QUAL – Vaneck MSCI International Quality ETF
- VGS – Vanguard MSCI INDEX International Shares ETF
- BAT – Battery Minerals Ltd
(Stocks are for exemplification purposes only; this is not an endorsement or recommendation.)
As illustrated, if applied on 9/06/2022, the equal allocation strategy among these 5 securities would have underperformed the All Ords index and an optimised asset allocation by 15/05/2023. While the equal allocation showed periods of better performance (around mid-August 2022), the trend reversed significantly. This highlights the importance of backtesting asset allocation strategies to understand potential risks and returns.
Key Benefits of Using Diversiview:
- Free portfolio backtesting: Analyse your first portfolio, no credit card required.
- Compare your portfolio value progression to major indexes behaviour.
- Gain insights into your portfolio’s potential performance.
- View granular diversification.
- Optimise your asset allocation.
Ready to learn more about your portfolio’s past performance with strategy backtesting? Log in or sign up to your account today to start analysing and optimising your investment portfolio.
