Strategy Card

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

Spec ID: spec-sector-momentum-rotation-etf-top50-1767027941_v14 · Generated: 2026-07-10 09:02 UTC

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

One-line description

Monthly rotates into the three eligible U.S. sector ETFs with the strongest composite relative strength versus SPY over 3-, 6-, and 12-month lookbacks. Positions are equal-weighted, traded at the next open after a one-day signal lag, with liquidity and history requirements applied before ranking.

Why this trade exists

Sector leadership tends to persist over intermediate horizons because macro shocks, earnings revisions, rates sensitivity, and investor flows do not reprice all industries instantly. Ranking sectors versus SPY attempts to isolate leadership within U.S. equity beta rather than simply buying the market after broad rallies.

The ETF implementation targets liquid, low-friction sector exposures and avoids single-name idiosyncratic risk. Monthly rebalancing is intended to capture medium-term trends while limiting unnecessary turnover.

Algorithm

[code omitted from public view]

Parameters

Param	Value	Notes
Rule type	SECTOR_MOMENTUM	Cross-sectional sector ETF momentum versus SPY
Lookbacks	63, 126, 252 trading days	Approx. 3/6/12 months
Composite score	Mean z-score across lookbacks	Ranks relative strength signals cross-sectionally
Relative strength	total_return(ETF, LB) / total_return(SPY, LB)	Benchmark-relative, not absolute momentum
Selection count	3 ETFs	Top-ranked eligible sector ETFs
Position sizing	Equal weight	Gross leverage 1.0
Max weight per position	40%	Risk override; equal-weight top 3 implies ~33.3% each
Rebalance	Monthly, first trading day	Signals lagged 1 trading day
Execution	Next open	Uses delayed signal to reduce look-ahead risk
Universe	Top 50 U.S. ETFs by capitalization, sector ETF filter	Provider metadata/name matching for sector classification
Liquidity filter	63-day ADV >= 250,000 shares	Share-volume based screen
Missing data rule	Drop if missing any lookback; require 252 days history	Avoids partial-window ranks
Costs	10 bps transaction cost + spread-proportional slippage proxy	Spread proxy uses 20 days
Backtest window	2020-01-01 to 2026-07-12 plan; available data shown 2018-01-01 to 2023-01-01	Interpret reported metrics with data-availability caveat

Look-ahead audit

#	Concern	Status
1	Signal uses future prices	Mitigated: ranks use historical lookbacks and trade with 1-day signal lag at next open
2	ETF universe survivorship bias	Needs review: top-50 ETF universe and sector classification may reflect current/provider metadata availability
3	Benchmark alignment	Mitigated: SPY return computed over same lookback windows as candidate ETFs
4	Missing price history	Mitigated: requires 252 days and drops names missing any lookback
5	Liquidity information timing	Needs review: confirm ADV filter is computed only from trailing volume as of rebalance date
6	Corporate actions/distributions	Needs review: relative strength should use adjusted total-return series consistently for ETFs and SPY

Caveats / known limitations

• Sector ETF universe construction is metadata/name-rule dependent and may introduce classification or survivorship bias if not point-in-time.
• The strategy is long-only and retains equity-market beta; relative strength versus SPY does not guarantee protection in broad market selloffs.
• Concentration is high: only three positions, with sector/theme crowding risk.
• Performance may be sensitive to the chosen 3/6/12-month lookbacks and monthly rebalance timing.
• No volatility targeting or stop loss is used, so drawdowns can remain material.
• Reported backtest metadata shows a planned interval extending beyond the displayed data period, so the effective tested sample should be verified before production use.

Results

The reported backtest is strong for a simple monthly sector-rotation rule, with total return of 161.24%, Sharpe of 1.21, Sortino of 1.50, and win rate of 85.71% over 56 trades. Risk is still meaningful: volatility is 20.50% and max drawdown is -23.83%, consistent with a concentrated long-only equity sector allocation. The high profit factor is encouraging but should be treated cautiously given the limited number of trades and the need to verify point-in-time universe construction.

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)