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We Combined Mean Reversion and Trend Following. Here’s What Actually Happened.
A follow-up to “Mean Reversion vs. Trend Following: What 26 Years of SPY Data Actually Says”
After the last piece ran RSI(2) mean reversion against a 50/200 SMA crossover on 26 years of SPY data, one comment stuck with me:
“It would be nice if you combined these two strategies into one two strategy portfolio. Its interesting to see if these two strategies would complement each other.”
Fair challenge. The 2 strategies have almost opposite trade P&L shapes — mean reversion’s distribution is heavily left-skewed with a kurtosis of 27 (many small wins, rare brutal losses), trend following’s is positively skewed with thin tails (many small losses, rare huge winners). On paper, that’s exactly the kind of mismatch that diversification is supposed to reward. So we tested it. Twice, actually, because the first way we combined them turned out to be the wrong question.
