Statistically backtesting an investment strategy: 2 page paper.

Statistically Back-testing the investment strategy of Facebook
Back-testing Long Short Moving Average (SMA) Crossover Strategy in MS-Excel
Back-Testing
Backing testing investment strategies means to measurement of the investment strategy to analyse the performance through historical data of the company. It helps to give us an idea of the future performance and benefits the stock of a company will provide due to a certain investment criteria. Thus, Back-testing is a statistical methodology in testing the hypothesis and to evaluate the winning strategies.
Strategy
In the analysis of the investment strategy of Facebook Inc. we will use the Long Short Moving Average Crossover Strategy using excel. It is a two moving average strategy where a longer and another shorter strategy is applied. Here, when the short moving average crosses the longer moving average, it is a Buy signal for the investor. At this point we can observe the trend is upward rising. This is also called a Golden cross. On the other hand, when the short moving average crosses below the long term moving average, it is a Sell signal. Here, the trend of the stock is downwards. This is also called dead cross or dead.
Methodology
We have applied some following procedures to extract the data of Facebook Inc:
1. We have extracted the historical data of Facebook from Yahoo finance from 14th May 2012 till 6th July 2020.
2. Then we have applied a Short term moving average of 5 days and a long term moving average of 25 days.
3. Then we have applied a excel formula to get the trade signals of buy or sell. The strategy we have applied to predict a buy or sell is, if in previous day the SMA was below LMA and in the current day the SMA is above LMA, then it is a buy signal.
4. If, in previous day the SMA was above LMA and in the current day the SMA is below LMA, then it is a sell signal.
5. Then we formulated a strategy to derive the purchase and selling price of the trade. Here, if the trade signal column i.e. buy or sell in the previous day is not an empty cell then we will use the previous price which is above the current price or else we will choose the current field to the closing price of the day.
6. The we have calculated the returns using excel formula where if the previous day depicted a sell signal then we will consider current closing price and divide it by the purchase price and subtract 1 and if it’s a buy signal then after adding 1 we will subtract current closing price and divide by purchase price.
7. We have also calculated few metrics to minimize the unfavourable stock price analysis to optimize the stop losses.
8. Finally, we have applied an equity curve to calculate the cumulative returns for the two strategies and decide whether to buy, sell or hold the share of Facebook Inc.
Results
We can observe from the below chart that the strategy returns is profitable as compared to the present Facebook returns. Hence, since the back-testing result provides a positive signal in the strategy returns average rising upwards, we should invest in Facebook Inc to derive a better trading opportunity using this winning strategy.
For calculation and formula checking of the back-testing investment strategy of Facebook Inc. using the statistical model the excel sheet is provided.
Returns from SMA(5) and LMA(25) in an equity chart

References
Investopedia; How to use a moving average to buy stocks; By Cory Mitchell, May 7th 2020; https://www.investopedia.com/articles/active-trading/052014/how-use-moving-average-buy-stocks.asp#:~:text=better%20future%20signals.-,Trading%20Strategies%E2%80%94Crossovers,one%20longer%20and%20one%20shorter.
Quant Insti; Back-testing Long Short Moving Average Crossover Strategy in Excel; By Jacques Joubert; Aug 29th 2016; https://blog.quantinsti.com/vectorized-backtesting-in-excel/
Returns
Strategy...