Competitors and baselines: how we compare the Core12 model
The Core12 OOS model is compared daily against 6 classic strategies (S&P 500, Equal-Weight, HRP, Inverse Volatility, Mean-Variance, 60/40 EU) over the same walk-forward period. This guide explains what each baseline does, why it matters, and how to interpret the metrics table and equity curve.
The 7 strategies in detail
Each baseline is computed on the same Core12 prices (12 UCITS ETFs), with monthly buy-and-hold rebalancing, base €10,000, gross (no transaction costs).
Core12 OOS (walk-forward)
The AI model evaluated only on dates posterior to its training.
Why it's included
Single source of truth for realizable returns — no look-ahead.
Pros
Alpha vs S&P 500 computed over the exact same OOS period.
Cons
Limited OOS period (~3.75 years); modest skill compared against bullish benchmarks.
S&P 500 (SXR8.DE UCITS)
100% capital in iShares Core S&P 500 UCITS ETF.
Why it's included
Reference market benchmark for any active US equity strategy.
Pros
Liquid, cheap (TER ~0.07%), well-known to every retail investor.
Cons
100% USA equity concentration — high volatility and severe drawdowns in bear markets.
Equal-Weight (1/N)
Trivial allocation: 1/12 to each ETF in the Core12 universe.
Why it's included
Control with no assumptions. If an active strategy doesn't beat this, it likely adds no value.
Pros
Diversified by construction; monthly rebalance keeps balanced exposure.
Cons
Ignores correlations, volatilities and expected returns; overweights small assets.
Inverse Volatility (simple Risk Parity)
Weights inversely proportional to each asset's volatility.
Why it's included
Classic roboadvisor strategy. Reduces concentrated risk in the most volatile assets.
Pros
Stable, low aggregate volatility, good performance in sideways regimes.
Cons
Overweights bonds during negative-rate periods (low return); lags in bull markets.
Hierarchical Risk Parity (HRP)
Hierarchical clusters by correlation + inverse-variance allocation.
Why it's included
Modern improvement on Risk Parity; avoids ill-conditioned matrix inversion (Lopez de Prado, 2016).
Pros
Robust to estimation errors; smooth and diversified weights.
Cons
Penalizes absolute return strongly in periods of stagnant bonds.
Mean-Variance (Markowitz Max Sharpe)
Classic optimization maximizing Sharpe over a 252-day rolling window.
Why it's included
Markowitz's Modern Portfolio Theory (1952). Academic foundation of quantitative allocation.
Pros
Theoretical foundation; can exploit positive expected return opportunities.
Cons
Very sensitive to estimates (expected return and covariance); unstable with few observations.
60/40 EU
60% diversified equity (SXR8 30%, IMEU 15%, XDEV 15%) + 40% EUR bonds (EUNH 25%, IEAC 15%).
Why it's included
Classic benchmark for European conservative investor with 5-10 year horizon.
Pros
Simple, UCITS-regulated, balanced regions + asset exposure.
Cons
Poor simultaneous equity + bonds behavior in 2022 (worst recent year).
How to read the metrics table
CAGR
Compound annualized return. A 10% CAGR means capital grows by 10% on average each year.
Sharpe
Return per unit of risk. ≥1 is good, ≥2 is exceptional. Compare strategies with different volatility.
Max Drawdown
Largest peak-to-trough loss. Indicates the worst transient loss scenario you'd have lived through investing at the worst moment.
Volatility
Annualized standard deviation of daily returns. Higher volatility = more erratic path (not necessarily worse long-term).
Frequently asked questions
Why compare the AI model to deterministic baselines?
What are the key metrics in the table?
Why doesn't Core12 OOS include more years of history?
Do the figures include transaction costs?
What does it mean for the model to beat the baseline?
Keep learning
Related guides to deepen your understanding of signals, metrics and validation.
BULL, BEAR and NEUTRAL signals guide
How the model picks each signal and when NEUTRAL shows up.
Read guideWalk-forward validation: avoid overfitting
Why it's more robust than a classic backtest.
Read guideUCITS ETFs for European investors
Costs, ISINs, domicile, currency and role in EUR portfolios.
Read guideReference: MSCI index methodology
This guide is educational content. The information does not constitute financial, investment, legal or tax advice. Core12 model signals and metrics are indicative only. Investing involves risk of capital loss. Consult a financial advisor before making investment decisions.