Endeavour Group Mean Reversion Strategy

EDV has a very low beta (around 0.3, so it moves much less than the market), stable demand for liquor regardless of the economy, a high dividend yield providing income, and a diversified retail-plus-hospitality base. During market falls, EDV typically declines less than growth stocks; during rallies it rises less. That stability makes it 'defensive' - it defends portfolio value during volatility - though it carries its own regulatory and ESG overhang from alcohol and gaming.

Bollinger Bands consist of a middle line (the 20-day average) and upper/lower bands at 2 standard deviations. They show when price is significantly above or below the average. At the lower band, price is 'oversold' (2 SD below average); at the upper band it is 'overbought.' Mean reversion trades these extremes, expecting a return to the middle.

Price can stay at or break through the bands during strong trends. The reversal candle (a hammer or engulfing pattern) confirms that buyers have actually stepped in and momentum is shifting. Without this confirmation, you might be 'catching a falling knife' - buying as price keeps falling.

The primary target is the middle Bollinger Band (the 20-day moving average) - the 'mean' that price reverts to. For strong setups, the extended target can be the opposite band. EDV typically takes around 5-10 days to mean revert, making the middle band a realistic target.

EDV's ~4-6% dividend yield is attractive to income investors. When the price drops, the yield rises (the same dividend on a lower price means a higher percentage). Income investors buy for yield, creating buying pressure at lower prices. This interest acts as a natural floor, supporting mean reversion from oversold levels - although the dividend itself has been somewhat variable, so the floor is a tendency rather than a guarantee.

Check the ADX indicator: below 25 = range-bound / mean-reverting, above 30 = trending. Also check the band-width percentile: below 30 = a squeeze (expect a breakout). Look at price action: multiple crosses of the middle BB = ranging, while staying above/below the middle = trending. Only apply mean reversion in a confirmed mean-reverting regime.

Gaming and poker-machine regulation (NSW cashless gaming, machine caps, feed-in limits) and Budget measures on alcohol/gaming can cause sharp moves that blow through technical stops. This binary event risk overrides mean reversion signals - avoid positions in the week before a known decision. After the event, if there is no negative surprise, mean reversion opportunities often emerge from a relief rally or oversold bounce.

For directional trades, ATM or slightly-ITM options at the band extremes, or a bull call spread with strikes at the lower BB (buy) and middle BB (sell) to capture the defined move efficiently. For income, an iron condor sells options at both bands to profit from range-bound behaviour. The key caveat: EDV single-stock option liquidity is thin, so verify quotes - often a CFD (for leverage) or XJO index options (for hedging) are the more practical choices. EDV's low IV does make long options relatively affordable when available.

Band width = (Upper - Lower) / Middle, which shows volatility. Normal width = standard mean reversion. High width (after a volatility event) = larger moves possible, wider stops needed. Low width (a squeeze) = expect a breakout, avoid mean reversion. Calculate the width percentile over 50 periods to classify the current regime.

Weekly Bollinger Bands show macro overbought/oversold zones; the daily chart generates signals. The best setups: daily oversold + weekly approaching oversold = a strong support zone. Both timeframes confirming increases the win rate. A weekly downtrend can override daily oversold signals - the weekly provides context for the daily signals.

Optimise the parameters (BB period/SD, RSI period/thresholds) with walk-forward testing, using a Z-score for the statistical framework and classifying the regime (ADX < 25 for mean-reverting). Create a signal quality score (band penetration, RSI, candle, volume, sector) and backtest a minimum threshold, targeting a win rate above 55%, a profit factor above 1.6 and a Sharpe above 1.0. Be mindful that EDV has only traded since 2021, so the sample is short - keep the model simple and validate carefully, and model execution in shares or CFDs given thin single-stock options.

Calculate the spread ratio (EDV/WOW) and its historical mean and SD. When the spread deviates more than 2 SD, go long the undervalued leg and short the overvalued leg (beta-adjusted for neutrality). Test cointegration to validate the relationship - the shared lineage and sector make it reasonably defensible - and this captures relative mispricing while hedging market direction. Retest cointegration quarterly as relationships can break.

High-importance features are typically RSI momentum (the direction of change, not just the level), band-width percentile (the regime), Z-score extremity, and event proximity (days to the February/August results or to a gaming-regulation decision). ML captures non-linear interactions such as 'oversold + RSI turning up + normal band width = high probability.' Use it in an ensemble with traditional analysis, and guard against overfitting on the limited history.

Target delta 0.55-0.65 (ATM/slightly ITM) where options are liquid. EDV's gradual moves mean gamma is less critical. Use a 15-20 DTE minimum to manage theta on the 5-10 day expected duration. EDV's low IV makes long options affordable, and a bull call spread (for longs) optimises for the defined target at the middle BB. Where EDV option quotes are too wide, a CFD replicates the directional exposure without option-specific Greeks.

A base allocation of 8-10% (EDV's low beta allows larger), a maximum Consumer Staples sector exposure of 15%, and dividend income factored into returns. Set a drawdown limit of -8% (lower than for high-beta strategies). Track the strategy separately - win rate, profit factor, Sharpe - and compare to a buy-and-hold EDV benchmark; the strategy should generate alpha to justify active management. Remember the tax distinction: the 50% CGT discount may apply to shares held more than 12 months if the ATO treats you as an investor, whereas CFD gains are ordinary income.