TickRun comparison: passive ownership of the selected ticker over the same saved date range, compounded from daily adjusted-close returns with the same initial capital.
Begin with the counterfactual
“The strategy made 40%” is not an evaluation. If simply holding the asset made 120%, the rule sacrificed substantial return; if the asset lost 20%, the same strategy result has different meaning. A benchmark represents what the capital would otherwise have done under a feasible passive or policy choice.
The benchmark must answer the actual question. For a timing rule on Apple, holding Apple is a direct test of whether the signals improved ownership of that ticker. For a diversified U.S. equity allocation, one stock is not a suitable market benchmark. For a market-neutral strategy, a fully invested equity index may measure the wrong risk. There is no universally correct benchmark detached from mandate.
Exactly how TickRun builds Buy & Hold
TickRun starts benchmark equity at the same initial capital as the strategy. For each saved daily observation it calculates adjusted-close return and compounds:
benchmark_equity[t] = benchmark_equity[t−1] × (1 + asset_return[t])
This is economically equivalent to continuous passive exposure over the available interval. Benchmark total return is final benchmark equity divided by initial capital minus one. Its maximum drawdown and annualized daily Sharpe ratio are calculated separately from the benchmark return path.
The comparison shares ticker, data file, and dates with the strategy, which removes many easy mismatches. But the benchmark currently has no modeled initial purchase cost or final sale cost. Active strategy entries and exits do incur the configured per-side cost. The benchmark is also treated as one trade with a positive win rate if its total return is positive; that field is a display convention, not a comparable sample of completed round trips.
Exposure changes the meaning of return
A long-only timing strategy alternates between one unit of market exposure and cash. Buy & Hold remains exposed every session. If the strategy is invested only half the time, lower return and lower drawdown may simply reflect less exposure rather than superior timing.
Useful diagnostics include percentage of sessions invested, average exposure, return while invested, return while flat, and return per unit of exposure. TickRun’s current metric cards do not show exposure explicitly, though the position series exists in the result. Inspecting the chart and trade list helps but is not a substitute for reporting it numerically.
Do not “fix” the comparison automatically by levering the timing strategy to equal exposure. Leverage changes transaction costs, financing, volatility, tail risk, and possible liquidation. Exposure matching is a separate hypothetical strategy whose assumptions must be modeled.
Cash is an active assumption
TickRun assigns zero return while flat. That is simple and transparent, but uninvested capital might earn interest in a money-market instrument, Treasury bills, or a broker cash program. Conversely, operational cash may earn less than a quoted policy rate, and taxes or fees may apply.
When cash rates are material and a strategy stays flat for long periods, zero cash yield understates its potential result. When comparing historical systems across rate regimes, the distortion is not constant. A richer benchmark can combine the strategy’s market position with an investable same-period cash series. The chosen series must be available at the correct time and converted to matching daily returns.
The Sharpe ratio has a related issue: TickRun does not subtract a risk-free rate from returns. Therefore both idle-cash treatment and excess-return calculation assume zero. Small differences between strategies with different time in market should be interpreted cautiously.
Return comparison is not risk adjustment
Outperforming Buy & Hold by total return does not prove efficiency if the strategy took greater risk, concentrated losses, or depended on unrealistic turnover. Underperforming does not prove uselessness if it materially reduced drawdown in a way aligned with the mandate.
Compare the complete paths: maximum drawdown, drawdown duration, volatility, Sharpe under a consistent convention, worst periods, and exposure. Also inspect whether the strategy’s defensive benefit occurred repeatedly or depends on sidestepping one famous crash selected in sample.
A cash-plus-market policy benchmark can be more informative for low-exposure timing rules. For example, a strategy averaging 40% exposure could be compared with a predeclared 40% passive ticker / 60% cash mix, rebalanced under explicit rules. This helps separate timing skill from simply holding less risk. TickRun does not currently calculate that blended benchmark.
A benchmark must be investable and reproducible
An index level may omit fees, taxes, trading frictions, or dividend treatment. An investable fund may track it imperfectly and begin later. A custom universe average may contain survivor bias. State the symbol or series, total-return convention, currency, rebalance method, costs, and dates.
Currency is especially important for international comparisons. A local-currency strategy and dollar benchmark embed different exchange-rate risks. Inflation adjustment answers a purchasing-power question but should be applied consistently to both series, not only to the strategy.
Start and end boundaries
A benchmark should share the strategy’s scored dates, not merely the requested dates. Long indicator warm-ups can delay the first valid signal while passive equity compounds from the beginning. That may be appropriate if capital was genuinely available and waiting, but it must be deliberate.
TickRun benchmark equity begins with the loaded history. A 200-session rule may spend its initial warm-up flat at zero cash return while Buy & Hold participates. This faithfully represents the current engine, yet comparisons across strategies with different warm-ups can reflect unequal active opportunity. A formal comparison can reserve a common warm-up and begin scoring every candidate on the same later row.
Ending with an open strategy position creates another asymmetry. The active equity includes its mark-to-market value without forcing a final exit cost, while Buy & Hold is also marked at the final adjusted close without sale cost. That is internally understandable, but neither final value is necessarily post-liquidation cash.
Use more than one benchmark when the question requires it
Benchmarks can form a hierarchy:
- Cash: did taking risk add value?
- Selected ticker Buy & Hold: did timing improve passive ownership?
- Exposure-matched policy: did signal timing add value beyond reduced exposure?
- Broad market or sector: was performance merely an asset-selection effect?
- Operational alternative: could an investable low-cost product deliver the relevant exposure?
Do not shop across benchmarks after seeing results and report only the easiest one to beat. Declare primary and secondary comparisons in the research plan.
Benchmark audit checklist
- What feasible alternative does the benchmark represent?
- Do ticker, currency, dates, and return convention match?
- Are dividends and corporate actions consistent?
- Are costs treated symmetrically or is the asymmetry disclosed?
- How does market exposure differ?
- What does idle cash earn?
- Do warm-up periods share a scoring start?
- Are risk and drawdown compared alongside return?
- Was the benchmark selected before viewing performance?