Strategy Card

Sector Relative Strength Rotation (3/6/12m vs SPY) — strategy card

Spec ID: spec-sector-momentum-rotation-etf-top50-1767027941_v12 · Generated: 2026-07-09 22:58 UTC

Cluster: Momentum · Sub Cluster: Sector Etf Relative Strength Rotation

One-line description

Monthly rotation strategy that buys the top 3 sector ETFs with the strongest composite relative strength versus SPY over 3, 6, and 12 months. Positions are equal-weighted, traded at the next open after a 1-day signal lag, and constrained by liquidity and per-position caps.

Why this trade exists

Sector leadership tends to persist over intermediate horizons due to slow-moving macro, earnings, flows, and institutional allocation cycles. Ranking sectors by performance relative to SPY attempts to capture cross-sectional momentum while staying invested in broad, liquid US equity industry exposures.

Using multiple lookbacks reduces dependence on a single horizon and favors sectors with consistent strength across quarterly, semiannual, and annual windows. ETF implementation lowers idiosyncratic single-stock risk and makes the strategy operationally simple, though it remains exposed to equity-market beta and momentum reversal risk.

Algorithm

[code omitted from public view]

Parameters

Param	Value	Notes
Rule type	SECTOR_MOMENTUM	Sector relative-strength rotation
Lookbacks	63, 126, 252 trading days	Approx. 3/6/12 months
Relative strength	ETF total return / SPY total return	Computed separately per lookback
Composite score	Mean z-score across lookbacks	Cross-sectional ranking signal
Selection count	3 ETFs	Top-ranked candidates
Position sizing	Equal weight	Gross leverage 1.0
Max weight per position	40%	Risk override; selection count implies ~33.3% target
Minimum positions	3	cash_if_fewer_candidates=false
Rebalance	Monthly, first trading day	Signals refreshed monthly
Execution	Next open, 1-day signal lag	Avoids same-day close/open look-ahead
Universe	Top 50 ETFs by capitalization	Then filtered to sector ETFs via metadata/name rules
Liquidity filter	63-day ADV >= 250,000 shares	Share-volume based
Missing data	Drop if missing any lookback	Require 252 days of history
Benchmark	SPY	Used for relative-strength denominator
Costs	10 bps transaction cost + proportional-to-spread slippage proxy	Spread proxy window: 20 days
Backtest window	2020-01-01 to 2026-07-15 specified	Available data context shows 2018-01-01 to 2023-01-01

Look-ahead audit

#	Concern	Status
1	Signal uses future prices	Mitigated: lookbacks use historical returns and execution applies a 1-day signal lag at next open
2	Universe survivorship / ETF availability	Needs review: top-50 ETF universe and sector classification should be point-in-time by year
3	Missing history bias	Mitigated but restrictive: candidates require full 252-day history and complete lookbacks
4	Benchmark alignment	Check required: SPY prices must be available on the same trading calendar as candidate ETFs
5	Transaction cost timing	Partially addressed: explicit 10 bps cost plus spread-based slippage proxy
6	Data-period consistency	Needs review: requested backtest extends beyond the stated available data end in the supplied context

Caveats / known limitations

• Concentrated exposure: only 3 ETFs, so drawdowns can be materially driven by a small number of sector bets.
• High equity beta: the strategy is long-only and can lose money during broad market selloffs despite relative-strength ranking.
• Momentum crash risk: sector leadership can reverse sharply around macro regime changes, policy shocks, or crowded positioning unwind.
• Sector universe identification via metadata/name matching may include or exclude ETFs inconsistently unless point-in-time classification is enforced.
• Backtest period appears short and includes unusual regimes around 2020-2022, so performance may not generalize.
• No volatility targeting or stop loss; realized volatility and drawdowns are unconstrained.
• Costs are modeled, but ETF spreads and execution quality may vary during stressed markets.

Results

The backtest shows strong absolute performance with total return of 161.24%, Sharpe of 1.21, Sortino of 1.50, and an 85.71% win rate across 56 trades. Risk is still meaningful: annualized volatility is 20.50% and max drawdown is -23.83%, consistent with a concentrated long-only equity sector rotation strategy. The very high profit factor should be interpreted cautiously given the modest trade count and limited effective sample.

Backtest metrics snapshot

Metric	Value
Total Return	161.24%
Sharpe	1.21
Sortino	1.50
Calmar	0.67
Max Drawdown	-23.83%
Volatility	20.50%
Win Rate	85.71%
Profit Factor	27.17
Total Trades	56
Symbols	50 (AGG, BIL, BIV, BND, BNDX, BSV, DIA, EFA, GLD, IEFA, +40 more)