Backtest: Buy CVX when the 20-day rolling correlation between its daily returns and Bre...
The idea is seductive: buy Chevron when its link to Brent breaks down, then sell when that link snaps back. A decaying correlation suggests the market is mispricing the stock relative to oil, and that tends to correct. But does the correction come fast enough to beat just holding the market? The backtest says no.
This strategy bought CVX when the 20-day correlation between its daily returns and Brent crude returns fell below 0.4, and exited when the 5-day correlation crossed back above zero. Across 77 closed trades, it returned 10.18% on $100,000, with a 52.6% win rate. The problem is the backdrop: SPY buy-and-hold gained 68.30% over the same window, putting the strategy 58.13 points behind.
The full methodology, trade-level breakdown, and equity curve are in the analysis below — along with where the signal stopped working.
Buy CVX when the 20-day rolling correlation between its daily returns and Brent crude returns falls below 0.4; exit when the 5-day correlation rises above 0.
How this was measured
This is a simulated backtest generated from the plain-English strategy below, executed bar-by-bar on historical market data using the price + news data mode with $100,000 starting capital. Strategy: Buy CVX when the 20-day rolling correlation between its daily returns and Brent crude returns falls below 0.4; exit when the 5-day correlation rises above 0.
The key numbers
The charts
The takeaway
The strategy returned +10.18% on $100,000 starting capital across 77 closed trades with a 53% win rate. Over the same window SPY buy-and-hold returned +68.30%, so the strategy finished trailing the benchmark by 58.13 points. Best single trade +4.22%, worst -4.79%.
The fine print
- Simulated results on historical data — fills, slippage and costs are idealized.
- Past performance does not predict future results.