StockFetcher Forums · General Discussion · Sector Rotation<< >>Post Follow-up
jimmyjazz
99 posts
msg #114301
Ignore jimmyjazz
7/2/2013 2:02:58 AM

I'm interested in the idea of swing-trading the SPDR sectors, most likely in time frames lasting days to a few weeks or so. If you dig around in the Filter Exchange forum, you'll find discussions where people are trading sector pairs long/short, using some kind of metric to determine which sectors are most likely to revert to their mean. Playing the pair lets you (possibly) win even if you only get one of two trades correct.

And then there is the Sector Rotation model promulgated by Faber et al where you buy the hottest sector in a bull market, rebalancing at whatever rate makes you happy.

Aren't these contradictory strategies? For instance, right now if you use Kevin_in_GA's Z-Score filter on the SPDR sectors, you'll see that XLY has the highest score and XLB the lowest. Pair trading those would lead you to go short XLY and go long XLB. Sector Rotation would have you go LONG XLY (since the market is still trending up).

Am I misunderstanding one or both of these strategies? If not, why the divergence?

Kevin_in_GA
4,538 posts
msg #114308
Ignore Kevin_in_GA
7/2/2013 10:47:31 AM

Playing the pair lets you (possibly) win even if you only get one of two trades correct.

And then there is the Sector Rotation model promulgated by Faber et al where you buy the hottest sector in a bull market, rebalancing at whatever rate makes you happy.


Faber's models are based on longer time frames - usually a momentum strategy looking back 3-6 months. Mean reversion is a shorter time frame, typically days to weeks. Pair trades are basically the same, and I don't think that you would get the same reduction of volatility if you were playing different sectors against each other.

I did look at XLU-XLI using Faber's momentum strategy, and have posted that work here already. In this case it pits an "offensive" sector (XLI) against a "defensive" one (XLU).

dashover
166 posts
msg #114313
Ignore dashover
7/2/2013 2:20:37 PM

F Squared investments, started a sector rotation index using the SPY internals in 2000,

They raised $25,000,000 and have grown their little vapax fund to over 4 B in 2.5 years in assets...

They now rotate , move to cash, and short...

All using the 9 spy internals.

-------


I wonder how their approach could be improved, further?


fotchstecker
158 posts
msg #134936
Ignore fotchstecker
3/15/2017 2:38:17 PM

Well, years later I think clicking the "post follow up" link on SF has true meaning.

What could be improved?
Not running a fraudulent fund for one.

http://fortune.com/2014/12/22/wall-street-sec-fsquared/

That's the follow up. Enjoy.

StockFetcher Forums · General Discussion · Sector Rotation<< >>Post Follow-up

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