Global Asset Allocation Strategy Using a Hidden Markov Model

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Edit and run Quant Buffet Python for Global Asset Allocation Strategy Using a Hidden Markov Model in the browser. Results update live with equity, drawdown, and metrics charts. Allowed: backtest.data, backtest.engine, backtest.metrics, numpy, pandas. Define ASSETS and make_on_day(prices). Shortcut: Ctrl+Enter. API docs →

Ready — edit code, then Run backtest.
IDE · 42 lines
Quant Buffet syntax cheat sheet (copy / insert)

Paste these fragments into the editor. The sandbox rejects QuantConnect, os, and network libraries.

Required imports
Only these libraries are allowed in the sandbox.
from __future__ import annotations

import numpy as np
import pandas as pd

from backtest.data import load_daily_prices
from backtest.engine import EngineConfig, PortfolioEngine
from backtest.metrics import compute_metrics
ASSETS list (whitelisted ETFs)
Module-level list. Tickers must be in the Quant Buffet whitelist.
ASSETS = ["SPY", "QQQ", "TLT", "GLD", "BIL"]
make_on_day contract
Must return (on_day, ready). on_day calls engine.set_target_weights.
def make_on_day(prices: pd.DataFrame):
    cols = [c for c in ASSETS if c in prices.columns]
    sma = prices[cols].rolling(200, min_periods=200).mean()
    state = {"last": None}

    def on_day(engine: PortfolioEngine, dt: pd.Timestamp) -> None:
        if sma.loc[dt].isna().all():
            return
        key = (dt.year, dt.month)
        if state["last"] == key:
            return
        state["last"] = key
        long = [
            s for s in cols
            if pd.notna(prices.at[dt, s]) and pd.notna(sma.at[dt, s])
            and prices.at[dt, s] > sma.at[dt, s]
        ]
        weights = {} if not long else {s: 1.0 / len(long) for s in long}
        engine.set_target_weights(dt, weights)

    ready = sma.dropna(how="all").index.min() if sma.notna().any().any() else None
    return on_day, ready
Set target weights
Weights should sum to about 1.0. Empty dict = 100% cash.
engine.set_target_weights(dt, {"SPY": 0.60, "BIL": 0.40})

Live backtest performance

CAGR
4.92%
Sharpe
0.50
Max DD
-21.41%
Vol
10.87%
Sortino
0.79
Beta
-0.11

Showing saved draft baseline until you re-run.

Equity curve (indexed = 100)

Accent = strategy · dashed grey = buy-and-hold benchmark

2003-012026-08136396
Drawdown
Worst -15.3%-15%
Metrics bar chart
CAGRSharpeSortinoVol|DD|Grey = baseline · Accent = live run
Monthly returns
2020-122026-08 · last 24 months

Export to your platform

Transform Quant Buffet lab code (ASSETS + make_on_day / PortfolioEngine) into native classes for a third-party IDE — then copy and paste.

Run in: QuantConnect Cloud or LEAN CLI · QCAlgorithm with Equity securities and monthly rebalance.

Detected pattern: Momentum rotationAssets: SPY, TLT, GLD, BIL
# Generated from Quant Buffet → QuantConnect LEAN
# Strategy: Global Asset Allocation Strategy Using a Hidden Markov Model
# Detected pattern: Momentum rotation
# Source uses Quant Buffet lab APIs (ASSETS + make_on_day / PortfolioEngine).
# Review fees, data, and risk before live trading — educational export only.

from AlgorithmImports import *


class QuantBuffetExport(QCAlgorithm):
    def Initialize(self):
        self.SetStartDate(2010, 1, 1)
        self.SetCash(100000)
        tickers = ["SPY", "TLT", "GLD", "BIL"]
        self.symbols = []
        for t in tickers:
            if "-" in t:  # crypto proxy e.g. BTC-USD
                self.symbols.append(self.AddCrypto(t.replace("-USD", ""), Resolution.Daily).Symbol)
            else:
                self.symbols.append(self.AddEquity(t, Resolution.Daily).Symbol)
        self.Schedule.On(
            self.DateRules.MonthStart(self.symbols[0]),
            self.TimeRules.AfterMarketOpen(self.symbols[0], 30),
            self.Rebalance,
        )
        # Logic: Hold top 1 by 126-day return; monthly.

    def Rebalance(self):
        scores = {}
        for symbol in self.symbols:
            hist = self.History(symbol, 126 + 5, Resolution.Daily)
            if hist.empty: continue
            close = hist["close"]
            if hasattr(close, "unstack"):
                close = close.unstack(level=0).iloc[:, 0]
            if len(close) < 126 + 1: continue
            scores[symbol] = float(close.iloc[-1] / close.iloc[-126 - 1] - 1)
        ranked = sorted(scores.items(), key=lambda kv: kv[1], reverse=True)[:1]
        for symbol in self.symbols:
            self.SetHoldings(symbol, 0)
        if ranked:
            w = 1.0 / len(ranked)
            for symbol, _ in ranked:
                self.SetHoldings(symbol, w)

Exported code uses the platform’s native classes and libraries. Install dependencies in your third-party IDE, then run. Validate before live trading.

Academic paper

Global Asset Allocation Strategy Using a Hidden Markov Model

AuthorsEunchong Kim; Han-wook Jeong; Nak-young Lee

InstituteYonsei University; Kyungpook National University

Teaser

Rank the book by trailing return and hold the top-N names equal-weight. Universe: SHY, IEF, TLT, LQD, HYG, TIP, BND. Parameters: lookback=126; top_n=1; rebalance=monthly. Rebalanced on the engine's template schedule with 5 bps commission and 2 bps slippage.

Strategy in a nutshell

This study uses the hidden Markov model (HMM) to identify the phases of individual assets and proposes an investment strategy using price trends effectively. We conducted empirical analysis for 15 years from January 2004 to December 2018 on universes of global assets divided into 10 classes and the more detailed 22 classes. Both universes have been shown to have superior performance in strategy using HMM in common. By examining the change in the weight of the portfolio, the weight change between the asset classes occurs dynamically. This shows that HMM increases the weight of stocks when stock price rises and increases the weight of bonds when stock price falls. As a result of analyzing the performance, it was shown that the HMM effectively reflects the asset selection effect in Jensen’s a

Economic rationale

Assets with stronger recent relative performance tend to continue outperforming over intermediate horizons; rotating into leaders harvests that premium. Related evidence from “Global Asset Allocation Strategy Using a Hidden Markov Model”: This study uses the hidden Markov model (HMM) to identify the phases of individual assets and proposes an investment strategy using price trends effectively. We conducted empirical analysis for 15 years from January 2004 to December 2018 on universes of global assets divided into 10 classes and the more detailed 22 classes. Both universes have been shown to have superior performance in strategy using HMM in common. By examining the change in the weight of the portfolio, the weight change between

Backtest performance

Annualised return4.92%
Volatility10.87%
Beta-0.11
Sharpe ratio0.50
Sortino ratio0.79
Maximum drawdown-21.41%