Liquidity And Performance Of A Fundamental Ranking System

I was worrying that the performance of T-Rank 2.0 would be impacted if I require higher liquidity. I ran some back tests and the result shows that requiring more liquidity will have negative impact on overall return, but the impact is manageable. In fact, there is really no big difference on overall return among portfolio size $100K, $200K, and $500K.

• Worst case $40K: $3 per share and average 50K shares per day in the past 20 days. So the worst case daily dollar volume is $150K and one would like to not put more than $2K per stock. With 20 stocks in the portfolio, the worst case size is $40K. Annualized return is 26.70%.
• $100K: The liquidity requirements are combined into one such that the average dollar volume traded per day in the past 60 days is at least $375K, and no more than $5K per stock. Annualized return is 22.96%.
• $200K: average dollar volume is at least $750K, and no more than $10K per stock. Annualized return is 21.51%.
• $500K: average dollar volume is at least $1.875M, and no more than $25K per stock. Annualized return is 22.72%.

Below is the performance chart.