Backtest: Buy XOP at the close when its 10-day total return underperforms XLE's by more...
Crude volatility liquidates upstream-heavy E&P baskets faster than integrated majors. That mismatch sets up a tempting mean-reversion trade: buy XOP after it lags XLE by a wide margin, provided Brent is still holding its 50-day trend, then exit on a quick relative bounce. The full backtest of that rule is below.
Across 14 closed trades, the strategy produced an 11.42% return on $100,000, with a 50% win rate. But the same period saw SPY buy-and-hold return 68.30% – a 56.88-point gap that puts the whole thesis in perspective.
The evidence shows the washout condition did trigger trades, but the expected snap-back was inconsistent. The analysis below breaks down each exit, the winners, and where the edge failed to materialize.
Buy XOP at the close when its 10-day total return underperforms XLE's by more than 2 percentage points and Brent crude closes above its 50-day moving average; exit when XOP's 5-day total return outperforms XLE's by 1 percentage point or after 5 trading days, whichever comes first. Upstream-heavy E&P baskets get liquidated faster than integrated majors during crude volatility, so a relative washout against XLE while Brent holds trend tends to snap back.
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 XOP at the close when its 10-day total return underperforms XLE's by more than 2 percentage points and Brent crude closes above its 50-day moving average; exit when XOP's 5-day total return outperforms XLE's by 1 percentage point or after 5 trading days, whichever comes first. Upstream-heavy E&P baskets get liquidated faster than integrated majors during crude volatility, so a relative washout against XLE while Brent holds trend tends to snap back.
The key numbers
The charts
The takeaway
The strategy returned +11.42% on $100,000 starting capital across 14 closed trades with a 50% win rate. Over the same window SPY buy-and-hold returned +68.30%, so the strategy finished trailing the benchmark by 56.88 points. Best single trade +4.96%, worst -3.53%.
The fine print
- Simulated results on historical data — fills, slippage and costs are idealized.
- Past performance does not predict future results.