Sweden Index Trading Strategy (OMX30) — What Is It? (Backtest And Example)

Last Updated on August 24, 2022 by Oddmund Groette

Sweden has a vibrant stock market, with many interesting companies like AstraZeneca, Atlas Copco AB, and Ericsson. You can track the performance of the Swedish market with the OMX Stockholm 30 and OMX Stockholm PI indexes.

OMX Stockholm PI is the composite index of the Swedish stock market, consisting of all the shares listed on OMX Nordic Exchange Stockholm. OMX Stockholm 30, on the other hand, is an index of the 30 largest companies on the Swedish stock market. In this article, we provide you with a Sweden OMX 30 trading strategy.

Let’s take a look at the indexes and some of their biggest stocks.

What is the stock index of Sweden (Stockholm)?

The Swedish stock market is very vibrant, with many indexes tracking the various segments of the market, including the OMX Stockholm PI, OMX Stockholm 30, OMX Nordic 40, OMX Stockholm Mid Cap, OMX Stockholm Small Cap, and so on. In this post, we will focus on the first two.

Stockholm is the main financial center of the Nordic region – by far. In the OMX Nordic 40, the index that tracks the 40 biggest public companies in the Nordic stock markets, Sweden has the highest weighting, albeit Danish drug giant Novo Nordisk is the single biggest company.

The Nordic region is Denmark, Norway, Sweden, Finland, and Iceland.

OMX Stockholm 30

The OMX Stockholm 30 Index is a major stock market index for the Stockholm Stock Exchange. It tracks the performance of the 30 largest stocks by market capitalization on the Nasdaq Stockholm Stock Exchange.

The OMX Stockholm 30 Index started on 30 Sep 1986, with a base value of 125. The index has been split by 4 on April 27, 1998. It is a free float, capitalization-weighted index.

OMX Stockholm PI

The OMX Stockholm PI is the all-share index of the Stockholm Stock Exchange. It includes all the shares listed on OMX Nordic Exchange Stockholm. The aim of the index is to reflect the current status and changes in the market and is available as PI.

The base date for the index is December 31, 1995, with a base value of 100. The index is available as PI.

What are the top 5 stocks in the OMX 30 Index?

The top 5 stocks in the OMX Stockholm 30 include the following:

  1. AstraZeneca PLC (AZN)
  2. Investor B (INVEB)
  3. Abb Ltd. (ABB)
  4. Atlas Copco (ATCOA)
  5. Hexagon AB (HEXAB)

However, by the time you read this, the weightings have most likely changed. Markets are extremely dynamic and companies go and go. To learn more about the extreme changes in public companies from decade to decade, you must read our article called Do Stocks Outperform Treasury Bills? We can assure you that the answer is not what you expected!

Let’s briefly look at the biggest companies in the OMX 30:

AstraZeneca PLC (AZN)

AstraZeneca PLC is a world-renowned biopharmaceutical company. It focuses on the discovery, development, production, and supply of drugs and other pharmacological agents. It focuses on three main therapy areas: Oncology, Cardiovascular, Renal & Metabolic (CVRM), and Respiratory, while selectively pursuing therapies in Autoimmunity, Infection, and Neuroscience.

Presently, the company has approximately 38 projects in Phase I, including 26 new molecular entities (NMEs), and 12 oncology combination projects; about 43 projects in Phase II, including 25 NMEs; six additional indications for projects that have reached phase II, and 12 oncology combination projects; and about 22 projects in late-stage development, either in Phase III/pivotal Phase II studies or under regulatory review.

The company’s market cap as of July 28, 2022, is 2.113 trillion SEK ($207.074 billion). The stock has been on the rise for quite some time and may be due for a pullback.

Investor B (INVEB)

It is a venture capital firm that invests in mature, middle market, buyouts, and growth capital investments. The firm seeks to invest globally and acquire a board seat. It operates through four business areas: core, private equity, operating, and financial investments. For core investments, the firm invests in health care, financial services, IT, and fintech sectors and considers investments in listed companies in leading minority positions. Some of its listed holdings include investments in ABB, AstraZeneca, Atlas Copco, Electrolux, Ericsson, Husqvarna, Nasdaq, Saab, SEB, Sobi, and Wartsila.

The stock has been on a prolonged decline year to date and may continue in its decline for some time. Its market cap as of July 28, 2022, is 578.282 billion SEK ($56.67 billion).

We have written a detailed analysis of Investor on our other website called RationalThinking dot net:

ABB Ltd. (ABB)

ABB Ltd is a holding company that engages in various products, including electrification products, robotics and motion, industrial automation, and power grids. It serves customers in utilities, industry and transport, and infrastructure through its four operational segments: Electrification Products, Robotics and Motion, Industrial Automation, and Power Grids. As of July 28, 2022, the stock’s market cap is 575.435 billion SEK ($56.4 billion). The stock has been on a decline for some time and may continue on that path for a while.

Atlas Copco AB (ATCOA)

The company, together with its subsidiaries, offers productivity solutions. It supplies piston compressors, oil-free tooth and scroll compressors, rotary screw compressors, oil-free blowers, oil-free centrifugal compressors, gas and process compressors, air and gas treatment equipment, and medical air solutions primarily for use in the manufacturing and process industries. The stock has been on the decline over the past year and may continue in its decline for some time. Its market cap as of July 28, 2022, is 528.857 billion SEK ($51.83 billion).

Hexagon AB (HEXAB)

The company operates as a provider of information technologies that drive productivity across geospatial and industrial enterprise applications for a range of industries, including agriculture, metals and mining, oil and gas, automotive, aerospace, medical devices, and pharmaceuticals. Its solutions integrate geospatial and industrial sensors, software, three-dimensional (3D) mapping, five-dimensional visualization and analysis, domain knowledge, and customer workflows into intelligent information ecosystems that deliver actionable information.

Hexagon AB is active in approximately 50 countries. It operates through numerous subsidiaries, including NESTIX Oy, MSC Software, Catavolt Inc., and DST Computer Services SA, among others. The company’s stock has been on a decline for the past one year and may continue in its decline for some time. As of July 28, 2022, the stock’s market cap is 315.078 billion SEK ($30.88 billion).

Sweden and OMX is a good place to invest

Contrary to what many believe, Sweden is not as socialistic as many believe. Sweden has a long history of being capitalistic and has a very innovative economy. As a result, it has performed better than the US stock market since 1965:

Sweden OMX trading strategy (Sweden performance since 1965)
Sweden OMX trading strategy (Sweden performance since 1965)

The table above is taken from Triumph Of The Optimists written by Dimson, Marsh, and Staunton. The returns above are real returns. As you can see, the Nordic countries have all performed better than the US market!

Sweden OMX trading strategy

But this article is about trading, not long-term investing, so let’s go ahead and look at one example of a Sweden OMX trading strategy. We used to trade OMX futures but we stopped a few years back to narrow our focus to other futures markets. One of the reasons was the time zone. We are based in Northern Europe, but we also trade other EU products in addition to the US markets. To narrow our focus and work we decided to skip OMX.

Sweden OMX trading strategy backtesting

The backtests done in this article are based on the cash index – NOT the futures. Thus, the results are only indicative!

If you backtest the OMX futures you might get very different results (the shorter the time frame the more different results). The best way to learn about the differences is to actually backtest BOTH the cash and the futures and you’ll experience it firsthand yourself. Trading is all about trial and error!

Sweden OMX trading strategy no 1

We start with a trend following strategy: we use the classic 200-day moving average strategy where we buy a cross above the moving average and we sell when it crosses below. This simple strategy has returned the following equity curve:

Sweden OMX trading strategy (200-day moving average)
Sweden OMX trading strategy (200-day moving average)

The Compound Annual Growth Rate (CAGR) is 3.5% which is substantially lower than the buy and hold of 6%. However, the strategy is only invested 34% of the time and the risk-adjusted return is over 10%. For more info about the latter please read our article on strategy performance metrics.

We did a strategy optimization of the moving average strategy, but the results get worse the short the days in the average.

Sweden OMX trading strategy no 2

Let’s go on to backtest a mean reversion trading strategy. This is a type of strategy that has performed well on most developed stock markets over the last 30 years. Does it work on Sweden’s OMX? There is only one way to find out and that is by using backtesting.

The RSI indicator has worked well for mean reversion strategies, but we prefer the Williams %R indicator made by Larry Williams.

Below is an equity chart showing where we buy a low Williams %R reading and sell when the readings goes above a threshold with a higher reading:

Sweden OMX trading strategy (backtest)
Sweden OMX trading strategy (backtest)

The average gain per trade is 0.55% and the trading win ratio is 74%. However, the strategy has performed poorly since 2017. We backtested many other mean reversion indicators, and they confirmed the same pattern: mean reversion has deteriorated over the last years. Is this temporary or a long-term trend? Only history can tell. This is what makes trading so challenging!

Sweden OMX trading strategy – ending remarks

Sweden has a huge capital market and the liquidity and trading opportunities are high. A lot of capital has accumulated in Sweden over many decades.

In this article, we backtested the most traded instrument, the OMX 30. Unfortunately, in our opinion, it has become trickier to trade the OMX over the last five years. The OMX trading strategies we backtested confirm that, especially when it comes to mean reversion strategies.

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