ROA Decile Spread Strategy by Market Cap
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Quant Buffet native backtest IDEEdit and run Quant Buffet Python for ROA Decile Spread Strategy by Market Cap 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 →
Quant Buffet syntax cheat sheet (copy / insert)
Paste these fragments into the editor. The sandbox rejects QuantConnect, os, and network libraries.
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_metricsASSETS = ["SPY", "QQQ", "TLT", "GLD", "BIL"]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, readyengine.set_target_weights(dt, {"SPY": 0.60, "BIL": 0.40})Live backtest performance
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.
# Generated from Quant Buffet → QuantConnect LEAN
# Strategy: ROA Decile Spread Strategy by Market Cap
# Detected pattern: Absolute momentum
# 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: Long assets with positive 252-day return; equal-weight; monthly.
def Rebalance(self):
# Pattern: abs_momentum — Long assets with positive 252-day return; equal-weight; monthly.
# Default: equal-weight. Port your make_on_day weights here via SetHoldings.
w = 1.0 / len(self.symbols) if self.symbols else 0.0
for symbol in self.symbols:
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
An Alternative Three-Factor Model
Long Chen; Robert Novy‐Marx; Lu Zhang
- Cheung Kong Graduate School of Business
- Luohe Academy of Agricultural Sciences
- ?Luohan Academy
- National Bureau of Economic Research
- University of Rochester
- ?National Bureau of Economic Research (NBER)
- ?Simon Business School, University of Rochester
- Fisher College
- ?Ohio State University - Fisher College of Business
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1418117
Strategy in a nutshell
The investment universe contains all stocks on NYSE and AMEX and Nasdaq with Sales greater than 10 million USD. Stocks are then sorted into two halves based on market capitalization. Each half is then divided into deciles based on Return on assets (ROA) calculated as quarterly earnings (Compustat quarterly item IBQ – income before extraordinary items) divided by one-quarter-lagged assets (item ATQ – total assets). The investor then goes long the top three deciles from each market capitalization group and goes short bottom three deciles. The strategy is rebalanced monthly, and stocks are equally weighted.
Economic rationale
Research explains that firms with productive assets should yield higher average returns than firms with unproductive assets. Productive firms for which investors demand high average returns should be priced similarly to less productive firms for which investors demand lower returns. Variation in productivity, therefore, helps identify variation in investors’ required rates of return. Therefore profitable firms generate higher average returns than unprofitable firms (as productivity helps identify this variation – with higher profitability indicating higher required rates). This fact motivates the return-on-asset factor.