Deciding Which Signal to Take

This stock trading question in deciding which signal to take, comes from Said B. who asks:

“When trading two strategies, one daily and the other weekly, on the same universe of stocks (Russell 3000)…  From time to time they will give signals for the same stocks on both the strategies. Should I only buy on the first one that will give the signal or should i consider these two systems as different entities and take every signal as it was backtested.”

In theory they should be traded exactly as signalled, although I’d be cautious if both strategies were similar, i.e. both are trend following or mean reverting.

If you’re trading highly correlated strategies, although within the Russell you will be highly correlated regardless, then I’d take the first signal and ignore the second. A broad Monte Carlo Simulation would help assess this.

It would also depend on the capital allocated to the signals. If it were a minimal allocation then I don’t see a major issue. If the strategies are quite focused then I’d be cautious.

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