Portfolio Backtesting is a strategy used by investors and traders to backtest how a portfolio would have performed if they have invested in a few specific assets during a defined time frame. The results of the portfolio backtesting help investors to create their own strategy (or expectations) while investing with similar assets in an alike situations.

To perform stock research, Portfolio Backtesting is a powerful tool for stock market investors. However, there are very few quality tools available in the Indian market to backtest Indian stock portfolios. In this post, we’ll discuss how to backtest portfolio using the Portfolio Backtesting tool by Trade Brains.

Portfolio Backtesting Tool by Trade Brains

portfolio backtesting 1

Using Trade Brains’ Portfolio Backtesting tool, you can backtest your strategies to find out the returns that you might have got on any past investments. Here, you can test how portfolios would have performed if you’ve invested in different stocks with varied allocations for 5Yrs/10Yrs back, before Demonetization, amid COVID19, or any other desired time frame.

This advance portfolio backtesting feature allows you to build one or multiple stock portfolios based on different allocations and backtest their performance. Moreover, you can find the detailed result and can look into the absolute returns, CAGR, Portfolio growth, Y-O-Y or M-O-M returns in stocks on these portfolios.

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Example: How to perform Portfolio Backtesting on Indian Stocks?

In this example, we’ll discuss how much returns you would have got if you’ve invested Rs One Lakh (1,00,000) in four companies Asian Paints, HDFC Bank, Hindustan Unilever (HUL), and Reliance between Jan 2014 to Jan 2019.

The allocations on all four stocks can vary in different portfolios. For example, an equally distributed portfolio will have Rs 25k invested in each stock. On the other hand, you can also give different weightage to some stocks in an unequally distributed portfolio.

portfolio allocation

Let’s backtest the return on these four stocks between 2014 to 2019. Here are the steps to perform Portfolio Backtesting on Indian stocks using Trade Brains Portal:

1. Got to Trade Brains Portal.

2. In the ‘Tools’ section on Top Menu Bar, select “Portfolio Backtesting”. Else, here is the direct link to the Trade Brains’ Portfolio Backtesting tool.

3. Enter the Start Date, End Date, and Initial Amount. For this example:

  • Start Date: 1st Jan 2014,
  • End Date: 1st Jan 2019 and
  • Initial investment amount: Rs 1,00,000

4. Next, allocate funds in different stocks to build your portfolio.

For Portfolio 1 (which is equally distributed), enter (25, 25, 25,25) which means 25% of Rs 1,00,000 allocated equally in each stock. In the other two portfolios take two different uneven allocations. For instance, (40, 40, 10, 10) and (20, 20, 30,30) allocation in stocks for Portfolio 2 and Portfolio 3.

portfolio backtesting 2 - allocations

5. Finally, Click on “Backtest”

After clicking on Backtest, a tabular result will appear that will show how much returns each portfolio would have made. Here is the result for the above example of portfolio backtesting:

portfolio backtesting result trade brains portal

From the above table, you can see that portfolio 1 has given a CAGR return of 18.81% per year. If you have an evenly distributed portfolio with the stocks of Asian Paints, HDFC Bank, HUL, and Reliance invested between Jan 2014 to Jan 2019, your investment amount of Rs 1,00,000 would have appreciated to Rs, 2,36,819.16 by 2019.

Note: You can look into the ‘Analysis’ segment on Trade Brains’ Portfolio Backtesting tool to get more details about the results of your backtest.

Further, please do notice that the second portfolio has given the best returns out of three with a CAGR of 19.81%. This shows that a better allocation can improve the final returns on the portfolio.


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Closing Thoughts

In this post, we discussed what is portfolio backtesting and the exact steps to perform it on Indian Stocks using Trade Brains Portal. If we summarize, portfolio backtesting is a powerful tool to find the historical performance of a bundle of stocks and evaluate how much returns can be expected if a similar portfolio is made. Another important point that we learned from this post is that the returns on a good portfolio can be improved by an efficient allocation of money on different stocks, rather than investing evenly in all.

That’s all for this post. I hope this post was useful to you. If you’ve got any queries related to Trade Brains’ Portfolio Backtesting tool, do let me know by commenting below. I’ll be happy to answer your doubts. Have a great day and Happy Investing.

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