Mean Reversion Strategy & Top 25 Stocks by Market Cap (2021)

Hello. Do you need help finding some new stocks for your watchlist? Maybe we can find stocks based on their Revenue or Net Income?

What is the difference between mean reversion, break out, and momentum strategies?

Here's a quick overview of the differences between mean reversion, breakout, and momentum strategies:

Mean Reversion

• Assumes that prices tend to revert back to their historical average or 'mean' over time.
• When a stock price moves significantly away from its average (either too high or too low), the strategy bets it will return to that average.
• Example: Buying a stock after a sharp decline, expecting it to bounce back.

Breakout

• Focuses on identifying when a stock price moves outside a well-defined support or resistance level.
• The idea is that once the price 'breaks out' of this range, it will continue moving strongly in that direction.
• Example: Buying a stock as it moves above a previous high, expecting continued upward momentum.

Momentum

• Assumes that stocks which have performed well recently will continue to perform well in the near future (and vice versa).
• It looks for strong trends and aims to ride the trend as long as possible.
• Example: Buying stocks that have been rising steadily over the past few months.

Summary:

• Mean reversion bets on prices snapping back to average.
• Breakout bets on prices moving strongly after breaking key levels.
• Momentum bets on trends continuing in the same direction.

These strategies can be combined or customized within NexusTrade to create automated trading strategies tailored to your preferences.

• A simple moving average is above a longer simple moving average
• A simple moving average is above a price
• A simple moving average is below a price
• A stock is below a lower bollinger band
• A stock is above a lower bollinger band
• Relative strength index is below a value (30)
• Relative strength index is above a value (30)
• A stock’s rate of change increases (and is positive)
• A stock’s rate of change decreases (and is negative)

These are all different market conditions. Which ones are breakout, which are momentum, and which are mean reverting?

Here's a classification of those market conditions into breakout, momentum, and mean reversion strategies:

Breakout Conditions

• A simple moving average is above a longer simple moving average
  Often signals a breakout from a previous trend (e.g., Golden Cross)
• A simple moving average is above a price
  Can indicate a breakout if price moves above a key average
• A simple moving average is below a price
  Can indicate a breakout if price moves below a key average

Momentum Conditions

• A simple moving average is above a longer simple moving average
  Also used in momentum to confirm trend direction
• A stock’s rate of change increases (and is positive)
  Indicates accelerating upward momentum
• A stock’s rate of change decreases (and is negative)
  Indicates accelerating downward momentum
• Relative strength index is above a value (30)
  Suggests momentum is recovering from oversold

Mean Reversion Conditions

• A stock is below a lower Bollinger Band
  Suggests price is oversold and may revert upward
• A stock is above a lower Bollinger Band
  Price moving back inside the band, indicating reversion
• Relative strength index is below a value (30)
  Indicates oversold conditions, expecting a bounce

Summary Table

Condition	Breakout	Momentum	Mean Reversion
SMA above longer SMA	✅	✅
SMA above price	✅
SMA below price	✅
Stock below lower Bollinger Band			✅
Stock above lower Bollinger Band			✅
RSI below 30			✅
RSI above 30		✅
ROC increases and positive		✅
ROC decreases and negative		✅

Some conditions can fit into multiple categories depending on context, but this classification should help you understand their typical use in trading strategies.

What are the top 25 stocks by market cap as of the end of 2021?

Here are the top 25 largest companies by market capitalization as of the end of 2021, based on the latest available trading day on or before December 31, 2021:

Ticker	Market Cap (USD)	Date
AAPL	$2,963,222,636,670	2021-12-31
MSFT	$2,533,019,152,992	2021-12-31
GOOG	$1,926,437,348,800	2021-12-31
AMZN	$1,683,872,000,000	2021-12-31
TSLA	$1,054,666,440,000	2021-12-31
META	$946,488,900,000	2021-12-31
NVDA	$735,250,000,000	2021-12-31
TSM	$623,936,814,508	2021-12-31
TM	$562,881,338,711	2021-12-31
UNH	$472,941,186,675	2021-12-31
JPM	$471,455,455,000	2021-12-31
V	$463,644,829,324	2021-12-31
JNJ	$450,495,054,233	2021-12-31
HD	$437,984,412,427	2021-12-31
WMT	$401,352,474,088	2021-12-31
PG	$400,481,919,134	2021-12-31
BAC	$365,996,985,000	2021-12-31
MA	$358,215,216,043	2021-12-31
PFE	$331,624,800,000	2021-12-31
DIS	$281,536,729,786	2021-12-31
AVGO	$273,889,478,035	2021-12-31
ACN	$272,251,353,921	2021-12-31
ADBE	$269,807,148,000	2021-12-31
CSCO	$267,277,925,060	2021-12-31
NFLX	$266,637,466,767	2021-12-31

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Summary & Observations:

• Apple (AAPL) was the world's largest company at the end of 2021, with a market cap just under $3 trillion.
• Microsoft (MSFT) followed closely, exceeding $2.5 trillion.
• Alphabet (GOOG) and Amazon (AMZN) were both comfortably above $1.5 trillion.
• Tesla (TSLA) crossed the $1 trillion mark, highlighting its rapid growth during 2021.
• The top 7 companies were all tech or tech-adjacent, reflecting the dominance of technology in global markets.
• Other sectors represented include financials (JPMorgan, Bank of America, Visa, Mastercard), healthcare (UnitedHealth, Johnson & Johnson, Pfizer), consumer staples (Procter & Gamble, Walmart), industrials/retail (Home Depot, Disney), and semiconductors (TSMC, Broadcom, Nvidia).
• The smallest company in this top 25 was Netflix (NFLX) with a market cap of ~$266 billion, which is still enormous by historical standards.

Interesting points:

• The sheer size gap between the top 5 and the rest is striking — Apple and Microsoft were each worth more than the combined market cap of many entire sectors.
• Tesla's inclusion in the trillion-dollar club was a major milestone reached in 2021.
• The dominance of U.S.-based companies is clear, with only a few exceptions like TSMC (Taiwan) and Toyota (Japan).
• This snapshot captures the peak of the 2021 bull market, just before the volatility of 2022.

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Important Disclaimers:

• This data is as of December 31, 2021 and market caps have likely changed significantly since then.
• As an AI, I strive to provide accurate summaries, but I can make mistakes or misinterpret data.
• Always double-check financial data and consult with a qualified financial advisor before making investment decisions.
• Past performance and size do not guarantee future returns.

If you'd like, I can help you analyze how these rankings have changed since then, or provide more details on any of these companies!

Using everything from this conversation, create a mean reverting strategy for all of these stocks. Have a filter that the stock is below is average price is looking like it will mean revert. You create the rest of the rules but it must be a rebalancing strategy

Description:
This portfolio implements a mean reversion strategy across the top 25 stocks by market capitalization as of the end of 2021. The core idea is to identify when a stock's price has fallen below its recent average, suggesting it is oversold and likely to revert upward toward its mean. The strategy filters for stocks whose current price is below their 20-day simple moving average (SMA) and where the 14-day Relative Strength Index (RSI) is below 30, indicating oversold conditions.
Once these conditions are met, the portfolio rebalances equally into all qualifying stocks, betting on a bounce back toward their average prices. The portfolio is reviewed and rebalanced every 14 days (bi-weekly) to capture new mean reversion opportunities and to exit positions that have reverted or no longer meet the criteria.
This approach combines price deviation from the average with a momentum exhaustion signal (RSI) to increase the probability of successful mean reversion trades. The initial investment is $10,000, equally allocated among the filtered stocks at each rebalance.
The full list of stocks considered for filtering and rebalancing includes:
AAPL, MSFT, GOOG, AMZN, TSLA, META, NVDA, TSM, TM, UNH, JPM, V, JNJ, HD, WMT, PG, BAC, MA, PFE, DIS, AVGO, ACN, ADBE, CSCO, NFLX.

JSON:

Backtest this strategy across Covid