A Historical Backtest takes a set of investment rules or asset allocations and runs them through actual historical market data to see how they would have performed.
Unlike Monte Carlo paths, a backtest is deterministic—it shows the exact chronological sequence of returns, preserving the real correlations, momentum crashes, and market regimes of history. If your portfolio holds 60% stocks and 40% bonds, a backtest will show exactly how it performed during the 2008 crash, day by day.
The primary limitation of backtesting is that past performance does not guarantee future results. The next market crash will likely look different from the last.