Making 100%+ per year is not the primary goal when developing quantitative trading system portfolios.
The real goal is to improve risk-adjusted performance.
One of the simplest ways to frame that is:
Average Annual Return / Maximum Drawdown
This number puts return and risk in the same sentence.
A system that makes 50% per year with a 50% drawdown is very different from a system that makes 25% per year with a 10% drawdown.
The Nasdaq 100 is a good benchmark because it has been one of the strongest long-term equity indexes in history.
But even there, the risk profile matters.
Since January 1, 2020, the Nasdaq 100 has produced an Average Annual Return of 20.59% with a Maximum Drawdown of 35.56%.
That gives it an:
Average Annual Return / Max Drawdown ratio of 0.579
Going back to Nasdaq 100 inception on November 1, 1985, that same ratio is much lower:
0.176
So even though the Nasdaq 100 has delivered strong long-term returns, the return relative to drawdown has varied dramatically depending on the time period measured.
That is why quantitative trading system development is not simply about chasing the highest return.
It is about improving the relationship between:
-Return
-Drawdown
-Consistency
-Recovery time
-Risk exposure
-Correlation to traditional markets
Many short-term trading programs have achieved an Average Annual Return / Max Drawdown ratio above 1.5.
Achieving 2.0+ is an elite level.
That is the real work.
Not just making more.
Making returns more efficient.
Capstone Trading Systems specializes in building portfolio models to improve risk adjusted returns.
The Two System Portfolio NQ is one of our example portfolios that has exceeded the 1.5 threshold in risk adjusted returns.
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