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The Buy & Hold Return is your ultimate reality check. It represents the total percentage return you would have achieved if you simply bought your target assets on day one of the simulation and did absolutely nothing until the final day.

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The Strategic Baseline

Every active trading strategy—with its specific rebalancing frequencies, stop-losses, and indicator triggers—takes time, effort, and incurs transaction costs (slippage, taxes, and broker fees). The Buy & Hold Return forces you to ask the most important question in quantitative finance: “Was my active strategy actually worth the effort?”
  • Underperforming the Baseline: If your active algorithmic strategy yielded +40% over three years, but a simple Buy & Hold approach yielded +60%, your active system is destroying alpha.
  • Outperforming the Baseline: If your active strategy yielded +45% while the Buy & Hold yielded +30%, you have successfully engineered structural market alpha.

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Risk-Adjusted Buy & Hold

There is one major exception to the rule above. If your active strategy slightly underperforms the absolute Buy & Hold return, it may still be superior if it drastically reduced your Maximum Drawdown. Many institutional investors will gladly accept slightly lower total returns in exchange for a significantly smoother, less volatile equity curve.