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Computerized Investing > August 19, 2017

Better Sector Rotation Performance Through Signal Processing and Problem Segmentation

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by Scott Juds

AAII

The founder of SumGrowth Strategies explains how to use his SectorSurfer service to build a sector rotation strategy that is optimized for both bull and bear markets.

Sector rotation, as an investment strategy, is rooted in the economic cycle data produced by the National Bureau of Economic Research (NBER) dating back to 1854. However, achieving satisfactory sector rotation investment performance has long been difficult or elusive. For example, Figure 1 illustrates how a sector rotation strategy employing the original nine Select Sector SPDR ETFs (exchange-traded funds) and a popular momentum algorithm (purple line, detailed later) barely outperforms a simple equal-weight portfolio of the same ETFs (red line). This article shows how performance similar to that of the “Desired Sector Rotation Strategy” (light blue line in Figure 1) can be achieved by utilizing advanced signal processing methods and employing problem segmentation to treat bull and bear markets as separate problems.

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Discussion

Glenn Patterson from CA posted about 1 month ago:

Very impressive article. Technically sound, and with solid data to back it up. Need more like this!


Richard Josefchuk from OK posted 19 days ago:

Good article. More people need to read an article like this to avoid being influence by the market noise.


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