Tactical Analysis
Tactical Analysis
Note
Data on this page was last updated on May 18, 2023
Expectations
Expectations are all about trying to identify future expectations of a particular asset.
Warning
A practitioner needs to confirm the expectations with a trend following model and risk management rules. It should not be viewed in a vacuum, and external forces should always be considered.
Long-term (CAPM) Expectations
Running the traditional CAPM model sets the framework for analyzing a multi-factor regression model. It also helps to understand the academic world’s perspective on the asset class. I would not put too much weight on these statistics unless you are a pension fund with very long-term investment horizons. Most of us are not and need to adjust our expectations for both the business cycle and economic factors.
| Return | Std Dev | Sharpe | Beta | |
|---|---|---|---|---|
| Sector - Health Care | 8.58% | 0.1827 | 0.3520 | 0.730 |
| Bechmark (Wilshire 5k) | 8.29% | 0.1807 | 0.3403 | 1.000 |
| Gold | 8.01% | 0.1781 | 0.3300 | 0.049 |
| Sector - Consumer Staples | 6.85% | 0.1554 | 0.3049 | 0.529 |
| Sector - Consumer Discretionary | 8.81% | 0.2290 | 0.2910 | 1.002 |
| Sector - Industrials | 8.04% | 0.2162 | 0.2732 | 0.967 |
| Sector - Utilities | 7% | 0.1960 | 0.2491 | 0.602 |
| Sector - Retail | 8.77% | 0.2763 | 0.2397 | 1.068 |
| Sector - Materials | 7.94% | 0.2428 | 0.2391 | 0.966 |
| Sector - Technology | 7.88% | 0.2620 | 0.2193 | 1.158 |
| Sector - Energy | 7.56% | 0.2940 | 0.1849 | 0.995 |
| Sector - Financials | 4.28% | 0.2950 | 0.0751 | 1.243 |
| Industry - Home Construction | 3.25% | 0.3647 | 0.0332 | 1.317 |
| Silver | 2.72% | 0.3158 | 0.0219 | 0.345 |
| Gasoline | 1.18% | 0.3731 | -0.0221 | 0.709 |
| Industry - Regional Banking | 1.23% | 0.3425 | -0.0227 | 1.285 |
| Industry - Regional banks | 1.23% | 0.3425 | -0.0227 | 1.285 |
| Industry - Oil & Gas Exploration | 0.38% | 0.4184 | -0.0383 | 1.385 |
| Currency - AU Dollar | 1.45% | 0.1303 | -0.0422 | 0.353 |
| Industry - Banks | 0.12% | 0.3574 | -0.0520 | 1.370 |
| Brent Oil | 0.08% | 0.3432 | -0.0554 | 0.675 |
| Currency - Swiss Franc | 1.41% | 0.1066 | -0.0556 | 0.003 |
| Commodity Index | 0.27% | 0.1976 | -0.0868 | 0.411 |
| Physical Energy | -0.67% | 0.2839 | -0.0928 | 0.545 |
| Soybean | 0.1% | 0.1877 | -0.0999 | 0.147 |
| Currency - U.S. Dollar | 1.08% | 0.0832 | -0.1097 | -0.077 |
| Corn | -0.96% | 0.2269 | -0.1286 | 0.144 |
| Agriculture | -0.74% | 0.1715 | -0.1576 | 0.246 |
| Currency - Euro | -0.47% | 0.0918 | -0.2656 | 0.108 |
| Currency - Emerging | -0.16% | 0.0773 | -0.2764 | 0.226 |
| Currency - Canadian Dollar | -0.57% | 0.0906 | -0.2800 | 0.221 |
| Currency - Japanese Yen | -1.23% | 0.1015 | -0.3133 | -0.165 |
| Oil | -11.71% | 0.3738 | -0.3600 | 0.702 |
| Currency - GBP Sterling | -1.76% | 0.0981 | -0.3773 | 0.144 |
| Weat | -11.04% | 0.2699 | -0.4744 | 0.067 |
| Natural Gas | -28.82% | 0.4723 | -0.6400 | 0.241 |
Business Cycle Expectations
The first step to estimating proper expectations is to understand the performance metrics filtered by our six business cycle stages. Core equities are sensitive to inflation expectations, growth, and credit risk; which often correlate to the business cycle.
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Currency - Japanese Yen | 14.27% | 0.1373 | 0.8751 |
| Gold | 21% | 0.2718 | 0.6847 |
| Currency - U.S. Dollar | 4.02% | 0.1207 | 0.1624 |
| Currency - Swiss Franc | 2.69% | 0.1281 | 0.0513 |
| Sector - Health Care | -3.03% | 0.2649 | -0.1869 |
| Silver | -6.43% | 0.4410 | -0.1877 |
| Currency - Euro | -0.36% | 0.1199 | -0.1942 |
| Agriculture | -6.01% | 0.3026 | -0.2600 |
| Sector - Materials | -11.02% | 0.3527 | -0.3624 |
| Currency - Canadian Dollar | -3.27% | 0.1363 | -0.3800 |
| Sector - Consumer Discretionary | -11.34% | 0.3379 | -0.3875 |
| Sector - Energy | -16.76% | 0.4285 | -0.4296 |
| Industry - Oil & Gas Exploration | -29.32% | 0.6848 | -0.4485 |
| Currency - AU Dollar | -8.52% | 0.2159 | -0.4783 |
| Sector - Technology | -20.93% | 0.4087 | -0.5504 |
| Sector - Consumer Staples | -10.45% | 0.2190 | -0.5580 |
| Sector - Utilities | -16.45% | 0.3133 | -0.5779 |
| Bechmark (Wilshire 5k) | -17.72% | 0.3033 | -0.6379 |
| Commodity Index | -18.3% | 0.2954 | -0.6742 |
| Sector - Industrials | -20.13% | 0.3204 | -0.6778 |
| Sector - Financials | -30.31% | 0.4630 | -0.6845 |
| Industry - Regional Banking | -43.39% | 0.5931 | -0.7505 |
| Industry - Regional banks | -43.39% | 0.5931 | -0.7505 |
| Physical Energy | -28.62% | 0.3979 | -0.7548 |
| Industry - Home Construction | -51.29% | 0.6870 | -0.7606 |
| Sector - Retail | -34.62% | 0.4567 | -0.7864 |
| Industry - Banks | -56.18% | 0.6532 | -0.8735 |
| Gasoline | -65.03% | 0.7481 | -0.8786 |
| Brent Oil | -90.1% | 0.9872 | -0.9146 |
| Natural Gas | -43.44% | 0.4851 | -0.9185 |
| Oil | -57.69% | 0.6099 | -0.9596 |
| Currency - GBP Sterling | -13.64% | 0.1315 | -1.1673 |
| Weat | -30.63% | 0.2265 | -1.4133 |
| Soybean | -21.24% | 0.1391 | -1.6394 |
| Currency - Emerging | -24.77% | 0.1141 | -2.3019 |
| Corn | -46.51% | 0.1850 | -2.5712 |
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Soybean | 57.69% | 0.2063 | 2.6455 |
| Sector - Retail | 76.9% | 0.2901 | 2.5303 |
| Brent Oil | 68.49% | 0.3021 | 2.1568 |
| Corn | 65.97% | 0.3084 | 2.0331 |
| Sector - Consumer Discretionary | 37.94% | 0.2106 | 1.6720 |
| Sector - Industrials | 39.21% | 0.2262 | 1.6118 |
| Gasoline | 56.36% | 0.3390 | 1.5716 |
| Sector - Materials | 40.56% | 0.2420 | 1.5612 |
| Currency - AU Dollar | 23.57% | 0.1423 | 1.4847 |
| Sector - Technology | 33.81% | 0.2111 | 1.4764 |
| Bechmark (Wilshire 5k) | 30.41% | 0.1891 | 1.4718 |
| Sector - Consumer Staples | 20.85% | 0.1289 | 1.4324 |
| Silver | 51.8% | 0.3536 | 1.3804 |
| Commodity Index | 27.85% | 0.2091 | 1.2111 |
| Physical Energy | 34.21% | 0.2884 | 1.0944 |
| Industry - Oil & Gas Exploration | 45.71% | 0.4086 | 1.0483 |
| Sector - Health Care | 18.02% | 0.1568 | 1.0005 |
| Sector - Energy | 31.91% | 0.2952 | 0.9927 |
| Sector - Financials | 35.87% | 0.3405 | 0.9747 |
| Oil | 33.46% | 0.3498 | 0.8813 |
| Industry - Banks | 42.61% | 0.4607 | 0.8638 |
| Industry - Home Construction | 34.46% | 0.3700 | 0.8595 |
| Currency - Canadian Dollar | 10.43% | 0.1025 | 0.8046 |
| Agriculture | 16.91% | 0.1858 | 0.7860 |
| Gold | 15.57% | 0.1718 | 0.7736 |
| Currency - Emerging | 7.82% | 0.0774 | 0.7354 |
| Currency - Swiss Franc | 9.41% | 0.1009 | 0.7177 |
| Sector - Utilities | 13.72% | 0.1615 | 0.7105 |
| Industry - Regional Banking | 31.52% | 0.4121 | 0.7019 |
| Industry - Regional banks | 31.52% | 0.4121 | 0.7019 |
| Weat | 19.08% | 0.2542 | 0.6579 |
| Currency - GBP Sterling | 7.07% | 0.1027 | 0.4819 |
| Currency - Euro | 5.35% | 0.1009 | 0.3237 |
| Currency - Japanese Yen | 1.99% | 0.1004 | -0.0027 |
| Natural Gas | -29.13% | 0.4806 | -0.6352 |
| Currency - U.S. Dollar | -7.61% | 0.0878 | -1.0756 |
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Sector - Consumer Discretionary | 22.35% | 0.1717 | 1.1606 |
| Sector - Utilities | 14.74% | 0.1327 | 0.9399 |
| Sector - Consumer Staples | 11.75% | 0.1173 | 0.8135 |
| Sector - Retail | 20.38% | 0.2261 | 0.7965 |
| Industry - Regional Banking | 22.61% | 0.2701 | 0.7474 |
| Industry - Regional banks | 22.61% | 0.2701 | 0.7474 |
| Sector - Health Care | 12.78% | 0.1458 | 0.7234 |
| Industry - Home Construction | 24.94% | 0.3140 | 0.7159 |
| Sector - Technology | 13.29% | 0.1720 | 0.6427 |
| Sector - Industrials | 13.43% | 0.1860 | 0.6015 |
| Bechmark (Wilshire 5k) | 11.78% | 0.1635 | 0.5854 |
| Sector - Financials | 13.7% | 0.2203 | 0.5201 |
| Industry - Banks | 15.57% | 0.2639 | 0.5033 |
| Sector - Energy | 13.5% | 0.2325 | 0.4840 |
| Brent Oil | 11.84% | 0.2382 | 0.4042 |
| Sector - Materials | 10.06% | 0.2133 | 0.3695 |
| Industry - Oil & Gas Exploration | 13.35% | 0.3470 | 0.3200 |
| Gasoline | 10.4% | 0.2585 | 0.3179 |
| Physical Energy | 5.48% | 0.2102 | 0.1615 |
| Oil | 3.07% | 0.2642 | 0.0392 |
| Currency - U.S. Dollar | 1.77% | 0.0739 | -0.0321 |
| Commodity Index | 1.36% | 0.1610 | -0.0401 |
| Weat | -3.74% | 0.2605 | -0.2165 |
| Soybean | -4.23% | 0.2258 | -0.2712 |
| Corn | -5.88% | 0.2560 | -0.3025 |
| Currency - Swiss Franc | -2.11% | 0.1152 | -0.3513 |
| Gold | -6.27% | 0.1899 | -0.4279 |
| Agriculture | -3.65% | 0.1296 | -0.4290 |
| Natural Gas | -16.9% | 0.4203 | -0.4413 |
| Currency - AU Dollar | -3.18% | 0.1116 | -0.4566 |
| Currency - GBP Sterling | -2.39% | 0.0750 | -0.5763 |
| Currency - Canadian Dollar | -2.75% | 0.0765 | -0.6106 |
| Silver | -19.89% | 0.3485 | -0.6161 |
| Currency - Euro | -4.04% | 0.0885 | -0.6708 |
| Currency - Emerging | -4.06% | 0.0794 | -0.7497 |
| Currency - Japanese Yen | -8.67% | 0.0939 | -1.1154 |
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Sector - Technology | 13.82% | 0.1534 | 0.7546 |
| Sector - Utilities | 11.4% | 0.1424 | 0.6457 |
| Sector - Health Care | 11.35% | 0.1461 | 0.6258 |
| Sector - Consumer Staples | 9.06% | 0.1127 | 0.6126 |
| Sector - Industrials | 10.08% | 0.1422 | 0.5559 |
| Sector - Financials | 10.94% | 0.1622 | 0.5394 |
| Industry - Home Construction | 12.45% | 0.2068 | 0.4945 |
| Industry - Regional Banking | 12.77% | 0.2144 | 0.4920 |
| Industry - Regional banks | 12.77% | 0.2144 | 0.4920 |
| Industry - Banks | 11.34% | 0.2032 | 0.4500 |
| Sector - Consumer Discretionary | 8.24% | 0.1425 | 0.4282 |
| Bechmark (Wilshire 5k) | 7.05% | 0.1286 | 0.3840 |
| Sector - Materials | 6.39% | 0.1614 | 0.2655 |
| Sector - Energy | 3.18% | 0.2130 | 0.0536 |
| Currency - U.S. Dollar | 1.65% | 0.0724 | -0.0499 |
| Gold | 0.25% | 0.1367 | -0.1270 |
| Sector - Retail | -1.23% | 0.1818 | -0.1753 |
| Soybean | -2.64% | 0.1703 | -0.2680 |
| Currency - Swiss Franc | -1.64% | 0.1173 | -0.3058 |
| Currency - Emerging | -0.55% | 0.0762 | -0.3306 |
| Silver | -5.43% | 0.2171 | -0.3362 |
| Gasoline | -10.72% | 0.3132 | -0.3986 |
| Industry - Oil & Gas Exploration | -12.49% | 0.3502 | -0.4060 |
| Currency - Japanese Yen | -1.97% | 0.0939 | -0.4164 |
| Currency - GBP Sterling | -2.59% | 0.0929 | -0.4859 |
| Currency - Euro | -2.5% | 0.0860 | -0.5146 |
| Brent Oil | -15.34% | 0.3223 | -0.5278 |
| Currency - AU Dollar | -3.33% | 0.0986 | -0.5319 |
| Physical Energy | -12.5% | 0.2530 | -0.5627 |
| Oil | -19.33% | 0.3339 | -0.6268 |
| Commodity Index | -8.51% | 0.1510 | -0.6831 |
| Natural Gas | -27.34% | 0.4042 | -0.7121 |
| Corn | -11.79% | 0.1850 | -0.7317 |
| Agriculture | -6.54% | 0.1117 | -0.7511 |
| Currency - Canadian Dollar | -4.3% | 0.0794 | -0.7800 |
| Weat | -20.41% | 0.2354 | -0.9340 |
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Currency - U.S. Dollar | 12.33% | 0.0596 | 1.6968 |
| Gold | 22.76% | 0.1695 | 1.1993 |
| Natural Gas | 62.69% | 0.5212 | 1.1413 |
| Sector - Energy | 25.41% | 0.2574 | 0.8907 |
| Sector - Utilities | 17.32% | 0.1701 | 0.8820 |
| Commodity Index | 15.82% | 0.1984 | 0.6820 |
| Physical Energy | 21.55% | 0.2888 | 0.6630 |
| Industry - Oil & Gas Exploration | 22.05% | 0.3291 | 0.5967 |
| Brent Oil | 23.29% | 0.3770 | 0.5532 |
| Oil | 19.01% | 0.3462 | 0.4812 |
| Sector - Consumer Staples | 9.51% | 0.1644 | 0.4471 |
| Corn | 9.19% | 0.1811 | 0.3882 |
| Gasoline | 13.05% | 0.3485 | 0.3105 |
| Weat | 12.29% | 0.3812 | 0.2643 |
| Sector - Health Care | 5.97% | 0.1748 | 0.2220 |
| Bechmark (Wilshire 5k) | 4.7% | 0.1708 | 0.1541 |
| Sector - Financials | 3.88% | 0.2144 | 0.0854 |
| Sector - Technology | 3.7% | 0.2503 | 0.0658 |
| Sector - Industrials | 2.35% | 0.1775 | 0.0182 |
| Soybean | -0.62% | 0.1769 | -0.1463 |
| Currency - AU Dollar | 0.49% | 0.0905 | -0.1656 |
| Sector - Consumer Discretionary | -1.77% | 0.2133 | -0.1742 |
| Agriculture | -1.51% | 0.1237 | -0.2795 |
| Sector - Materials | -5.49% | 0.2111 | -0.3486 |
| Sector - Retail | -8.02% | 0.2447 | -0.4019 |
| Industry - Banks | -9.08% | 0.1906 | -0.5708 |
| Currency - Emerging | -2.82% | 0.0784 | -0.6047 |
| Silver | -15.02% | 0.2573 | -0.6492 |
| Currency - Euro | -3.22% | 0.0770 | -0.6664 |
| Currency - Canadian Dollar | -4.14% | 0.0677 | -0.8906 |
| Industry - Regional Banking | -19.58% | 0.2241 | -0.9449 |
| Industry - Regional banks | -19.58% | 0.2241 | -0.9449 |
| Currency - Swiss Franc | -4.39% | 0.0601 | -1.0438 |
| Currency - GBP Sterling | -8.2% | 0.0814 | -1.2297 |
| Industry - Home Construction | -40.52% | 0.2720 | -1.5327 |
| Currency - Japanese Yen | -9.91% | 0.0636 | -1.8391 |
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Sector - Utilities | 17.28% | 0.1656 | 0.9034 |
| Sector - Consumer Staples | 12.98% | 0.1407 | 0.7637 |
| Industry - Home Construction | 24.33% | 0.2866 | 0.7632 |
| Gold | 9.19% | 0.1539 | 0.4566 |
| Sector - Industrials | 10.25% | 0.1790 | 0.4510 |
| Sector - Financials | 10.3% | 0.2034 | 0.3991 |
| Currency - U.S. Dollar | 4.91% | 0.0745 | 0.3810 |
| Silver | 11.21% | 0.2786 | 0.3234 |
| Sector - Materials | 7.81% | 0.2109 | 0.2694 |
| Sector - Health Care | 3.68% | 0.1568 | 0.1041 |
| Currency - GBP Sterling | 2.7% | 0.0980 | 0.0680 |
| Currency - Swiss Franc | 2.49% | 0.0793 | 0.0583 |
| Gasoline | 2.27% | 0.3599 | 0.0070 |
| Sector - Energy | 2.19% | 0.2684 | 0.0064 |
| Bechmark (Wilshire 5k) | 1.51% | 0.1779 | -0.0281 |
| Sector - Retail | 0.53% | 0.2641 | -0.0552 |
| Sector - Technology | 0.45% | 0.2688 | -0.0573 |
| Sector - Consumer Discretionary | 0.47% | 0.2369 | -0.0642 |
| Currency - Euro | 1.45% | 0.0748 | -0.0743 |
| Currency - Emerging | 0.35% | 0.0688 | -0.2371 |
| Brent Oil | -8.24% | 0.3480 | -0.2891 |
| Physical Energy | -6.9% | 0.2858 | -0.3057 |
| Industry - Banks | -6.26% | 0.2385 | -0.3403 |
| Currency - AU Dollar | -1.65% | 0.1034 | -0.3472 |
| Agriculture | -3.79% | 0.1458 | -0.3902 |
| Currency - Canadian Dollar | -1.11% | 0.0675 | -0.4547 |
| Industry - Oil & Gas Exploration | -15.74% | 0.3645 | -0.4774 |
| Commodity Index | -7.94% | 0.1912 | -0.5105 |
| Currency - Japanese Yen | -3.68% | 0.1040 | -0.5363 |
| Industry - Regional Banking | -13.38% | 0.2574 | -0.5866 |
| Industry - Regional banks | -13.38% | 0.2574 | -0.5866 |
| Soybean | -9.41% | 0.1744 | -0.6420 |
| Oil | -20.78% | 0.3328 | -0.6714 |
| Weat | -19.94% | 0.2918 | -0.7376 |
| Corn | -15.22% | 0.1975 | -0.8552 |
| Natural Gas | -57.16% | 0.6113 | -0.9490 |
Note
The current stage of the business cycle is stage 6 which is a imminent recession.
**
Business Cycle Stage Best performers
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Industry - Home Construction | 24.33% | 0.2866 | 0.7632 |
| Sector - Utilities | 17.28% | 0.1656 | 0.9034 |
| Sector - Consumer Staples | 12.98% | 0.1407 | 0.7637 |
| Silver | 11.21% | 0.2786 | 0.3234 |
| Sector - Financials | 10.3% | 0.2034 | 0.3991 |
Annualized Metrics (Rf = 2.00%)
Important
Avoid the following equity classes:
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Corn | -15.22% | 0.1975 | -0.8552 |
| Industry - Oil & Gas Exploration | -15.74% | 0.3645 | -0.4774 |
| Weat | -19.94% | 0.2918 | -0.7376 |
| Oil | -20.78% | 0.3328 | -0.6714 |
| Natural Gas | -57.16% | 0.6113 | -0.9490 |
Factor Expectations
By this point, you should know that economic factors play a vital role in estimating the future expectations of an asset. Each asset needs to be run through our machine learning regression model to assess what factors are essential and the future expectation for the help.
Current Factor Trends:
| Trend | |
|---|---|
| Economic Growth (Gr) | |
| Monetary Policy (Mp) | |
| Credit - Investment Grade (Cr) | |
| Credit - High Yield (Ch) | |
| Inflation Expectations (Ie) | |
| Real Rates (Rr) | |
| Long-term Real Rates (Rl) | |
| Currency (Cu) | |
| Commodity (Cm) |
Factor investing diversifies the beta (smart beta) between the asset and the factor instead of focusing on the beta between the security and a benchmark. One can estimate what they think the risk premia will be over time and control factor-beta, and use the long-term history for the presumed risk of the factors. That is unacceptable to us; using long-term data might be okay if you are a pension fund with a horizon of 100 years, but we investors have a much shorter investment horizon.
So what we do differently is identify the factor's current trend to calculate the risk premia and expected return of a particular asset. Furthermore, we do not rely on beta alone for sensitivity. Still, we run our regression through a machine-learning algorithm to more accurately model the factor's sensitivity. While our approach is not that academic, it is practical for real-world decision-making and does not require a long history to compute.
| Gr | Mp | Cr | Ch | Ie | Rr | Rl | Cu | Cm | |
|---|---|---|---|---|---|---|---|---|---|
| Benchmark (Wilshire 5k) | 0.2452 | 0.0644 | -0.1289 | -0.0187 | 0.1057 | 0.0266 | 0.0499 | -0.0025 | 0.0011 |
| Invesco DB Cm Idx | 0.2184 | 0.0301 | -0.0987 | -0.0163 | 0.1277 | -0.0143 | 0.016 | -0.0094 | 0.0036 |
| Oil | 0.3172 | 0.0637 | -0.1574 | -0.0253 | 0.2171 | -0.0139 | 0.0466 | -0.0111 | 0.006 |
| Gold | 0.0774 | -0.0358 | -0.0049 | 0.0005 | 0.0251 | -0.0478 | -0.0506 | -0.0108 | 0.0014 |
| Silver | 0.2428 | -0.0224 | -0.0917 | -0.0111 | 0.1033 | -0.0626 | -0.0525 | -0.0194 | 0.0032 |
| Natural Gas | 0.0968 | 0.0204 | -0.0492 | -0.0067 | 0.0636 | -0.0113 | 0.0117 | -0.0061 | 0.0033 |
| Agriculture | 0.1336 | 0.0325 | -0.0605 | -0.0112 | 0.0657 | 0.0032 | 0.0183 | -0.0068 | 0.0024 |
| Corn | 0.1124 | 0.0019 | -0.0369 | -0.0095 | 0.0466 | -0.0059 | 0.0103 | -0.0032 | 0.0024 |
| Brent Oil | 0.4357 | 0.0527 | -0.2003 | -0.0448 | 0.2434 | -0.0385 | 0.0262 | -0.0067 | 0.0066 |
| Physical Energy | 0.2681 | 0.0458 | -0.135 | -0.022 | 0.1737 | -0.0142 | 0.0316 | -0.0098 | 0.0048 |
| Weat | 0.0608 | -0.0105 | -0.0019 | -0.0041 | 0.0413 | -0.0117 | 0.0064 | -0.0038 | 0.0023 |
| Gasoline | 0.34 | 0.0642 | -0.2077 | -0.0286 | 0.2091 | -0.0211 | 0.041 | -0.0095 | 0.0055 |
| Soybean | 0.1248 | 0.0052 | -0.0451 | -0.0112 | 0.0505 | -0.0063 | 0.0091 | -0.0037 | 0.0021 |
| Currency - Swiss Franc | 0.0365 | -0.0316 | -0.0029 | 0 | 0.0088 | -0.0318 | -0.0292 | -0.0109 | 0.0005 |
| Currency - Emerging | 0.1339 | -0.0011 | -0.0578 | -0.0116 | 0.0422 | -0.0095 | 0.0024 | -0.0062 | 0.0009 |
| Currency - Canadian Dollar | 0.0929 | 0.0095 | -0.0433 | -0.007 | 0.0502 | -0.0067 | 0.0054 | -0.0072 | 0.0009 |
| Currency - Euro | 0.0513 | -0.0131 | -0.019 | -0.0022 | 0.0228 | -0.016 | -0.0096 | -0.0124 | 0.0006 |
| Currency - GBP Sterling | 0.0712 | -0.0084 | -0.0318 | -0.0045 | 0.0308 | -0.0117 | -0.0054 | -0.01 | 0.0007 |
| Currency - Japanese Yen | -0.0201 | -0.0586 | 0.031 | 0.0059 | -0.0359 | -0.0428 | -0.0472 | -0.006 | -0.0002 |
| Currency - AU Dollar | 0.1546 | 0.0134 | -0.0695 | -0.011 | 0.0677 | -0.0138 | -0.0013 | -0.0112 | 0.0013 |
| Currency - U.S. Dollar | -0.0476 | 0.0176 | 0.0152 | 0.0017 | -0.0191 | 0.0191 | 0.0135 | 0.0111 | -0.0006 |
| Industry - Regional Banking | 0.3039 | 0.1147 | -0.1732 | -0.0313 | 0.1559 | 0.0751 | 0.1068 | -0.0047 | 0.0014 |
| Sector - Energy | 0.3137 | 0.0824 | -0.1751 | -0.0228 | 0.1914 | 0.0119 | 0.0555 | -0.0063 | 0.0034 |
| Sector - Health Care | 0.1766 | 0.0388 | -0.0976 | -0.0138 | 0.0615 | 0.0184 | 0.0338 | -0.001 | 0.0006 |
| Sector - Technology | 0.2545 | 0.0751 | -0.1276 | -0.0196 | 0.0973 | 0.0287 | 0.052 | -0.0011 | 0.001 |
| Sector - Consumer Staples | 0.1276 | 0.0258 | -0.0722 | -0.01 | 0.0456 | 0.0151 | 0.0247 | -0.0014 | 0.0003 |
| Sector - Utilities | 0.1698 | 0.028 | -0.0955 | -0.0119 | 0.0538 | -0.0031 | 0.0084 | -0.0029 | 0.0007 |
| Sector - Consumer Discretionary | 0.2451 | 0.0565 | -0.1181 | -0.0186 | 0.1034 | 0.0271 | 0.0485 | -0.0021 | 0.0008 |
| Industry - Oil & Gas Exploration | 0.4577 | 0.1232 | -0.2419 | -0.0405 | 0.2779 | 0.0152 | 0.082 | -0.0119 | 0.005 |
| Sector - Retail | 0.2765 | 0.0638 | -0.1249 | -0.0252 | 0.1176 | 0.038 | 0.062 | -0.0049 | 0.0011 |
| Industry - Home Construction | 0.3637 | 0.0712 | -0.1662 | -0.0301 | 0.1584 | 0.0148 | 0.0369 | -0.0081 | 0.0014 |
| Sector - Materials | 0.2949 | 0.0641 | -0.1464 | -0.0215 | 0.1325 | 0.0222 | 0.0544 | -0.006 | 0.0018 |
| Sector - Industrials | 0.2732 | 0.0681 | -0.1525 | -0.0216 | 0.1178 | 0.0284 | 0.0556 | -0.0026 | 0.0011 |
| Sector - Financials | 0.2902 | 0.0944 | -0.1726 | -0.0237 | 0.1489 | 0.0535 | 0.0812 | -0.0026 | 0.0011 |
| Industry - Regional banks | 0.3039 | 0.1147 | -0.1732 | -0.0313 | 0.1559 | 0.0751 | 0.1068 | -0.0047 | 0.0014 |
| Industry - Banks | 0.3433 | 0.131 | -0.2117 | -0.035 | 0.181 | 0.0721 | 0.1051 | -0.0055 | 0.0015 |
| Gr | Mp | Cr | Ch | Ie | Rr | Rl | Cu | Cm | |
|---|---|---|---|---|---|---|---|---|---|
| Benchmark (Wilshire 5k) | 0.381 | 0.1 | 0.2 | 0.029 | 0.164 | 0.041 | 0.078 | 0.004 | 0.002 |
| Invesco DB Cm Idx | 0.409 | 0.056 | 0.185 | 0.03 | 0.239 | 0.027 | 0.03 | 0.018 | 0.007 |
| Oil | 0.37 | 0.074 | 0.183 | 0.029 | 0.253 | 0.016 | 0.054 | 0.013 | 0.007 |
| Gold | 0.304 | 0.141 | 0.019 | 0.002 | 0.099 | 0.188 | 0.199 | 0.042 | 0.006 |
| Silver | 0.399 | 0.037 | 0.151 | 0.018 | 0.17 | 0.103 | 0.086 | 0.032 | 0.005 |
| Natural Gas | 0.36 | 0.076 | 0.183 | 0.025 | 0.236 | 0.042 | 0.043 | 0.023 | 0.012 |
| Agriculture | 0.4 | 0.097 | 0.181 | 0.034 | 0.197 | 0.01 | 0.055 | 0.02 | 0.007 |
| Corn | 0.491 | 0.008 | 0.161 | 0.041 | 0.203 | 0.026 | 0.045 | 0.014 | 0.01 |
| Brent Oil | 0.413 | 0.05 | 0.19 | 0.042 | 0.231 | 0.036 | 0.025 | 0.006 | 0.006 |
| Physical Energy | 0.38 | 0.065 | 0.191 | 0.031 | 0.246 | 0.02 | 0.045 | 0.014 | 0.007 |
| Weat | 0.426 | 0.074 | 0.013 | 0.029 | 0.289 | 0.082 | 0.045 | 0.027 | 0.016 |
| Gasoline | 0.367 | 0.069 | 0.224 | 0.031 | 0.226 | 0.023 | 0.044 | 0.01 | 0.006 |
| Soybean | 0.484 | 0.02 | 0.175 | 0.043 | 0.196 | 0.024 | 0.035 | 0.014 | 0.008 |
| Currency - Swiss Franc | 0.24 | 0.208 | 0.019 | 0 | 0.058 | 0.209 | 0.192 | 0.072 | 0.003 |
| Currency - Emerging | 0.504 | 0.004 | 0.218 | 0.044 | 0.159 | 0.036 | 0.009 | 0.023 | 0.003 |
| Currency - Canadian Dollar | 0.416 | 0.043 | 0.194 | 0.031 | 0.225 | 0.03 | 0.024 | 0.032 | 0.004 |
| Currency - Euro | 0.349 | 0.089 | 0.129 | 0.015 | 0.155 | 0.109 | 0.065 | 0.084 | 0.004 |
| Currency - GBP Sterling | 0.408 | 0.048 | 0.182 | 0.026 | 0.177 | 0.067 | 0.031 | 0.057 | 0.004 |
| Currency - Japanese Yen | 0.081 | 0.237 | 0.125 | 0.024 | 0.145 | 0.173 | 0.191 | 0.024 | 0.001 |
| Currency - AU Dollar | 0.45 | 0.039 | 0.202 | 0.032 | 0.197 | 0.04 | 0.004 | 0.033 | 0.004 |
| Currency - U.S. Dollar | 0.327 | 0.121 | 0.104 | 0.012 | 0.131 | 0.131 | 0.093 | 0.076 | 0.004 |
| Industry - Regional Banking | 0.314 | 0.119 | 0.179 | 0.032 | 0.161 | 0.078 | 0.11 | 0.005 | 0.001 |
| Sector - Energy | 0.364 | 0.096 | 0.203 | 0.026 | 0.222 | 0.014 | 0.064 | 0.007 | 0.004 |
| Sector - Health Care | 0.399 | 0.088 | 0.221 | 0.031 | 0.139 | 0.042 | 0.076 | 0.002 | 0.001 |
| Sector - Technology | 0.387 | 0.114 | 0.194 | 0.03 | 0.148 | 0.044 | 0.079 | 0.002 | 0.002 |
| Sector - Consumer Staples | 0.395 | 0.08 | 0.224 | 0.031 | 0.141 | 0.047 | 0.077 | 0.004 | 0.001 |
| Sector - Utilities | 0.454 | 0.075 | 0.255 | 0.032 | 0.144 | 0.008 | 0.022 | 0.008 | 0.002 |
| Sector - Consumer Discretionary | 0.395 | 0.091 | 0.19 | 0.03 | 0.167 | 0.044 | 0.078 | 0.003 | 0.001 |
| Industry - Oil & Gas Exploration | 0.365 | 0.098 | 0.193 | 0.032 | 0.221 | 0.012 | 0.065 | 0.009 | 0.004 |
| Sector - Retail | 0.387 | 0.089 | 0.175 | 0.035 | 0.165 | 0.053 | 0.087 | 0.007 | 0.002 |
| Industry - Home Construction | 0.427 | 0.084 | 0.195 | 0.035 | 0.186 | 0.017 | 0.043 | 0.01 | 0.002 |
| Sector - Materials | 0.396 | 0.086 | 0.197 | 0.029 | 0.178 | 0.03 | 0.073 | 0.008 | 0.002 |
| Sector - Industrials | 0.379 | 0.094 | 0.212 | 0.03 | 0.163 | 0.039 | 0.077 | 0.004 | 0.002 |
| Sector - Financials | 0.334 | 0.109 | 0.199 | 0.027 | 0.172 | 0.062 | 0.094 | 0.003 | 0.001 |
| Industry - Regional banks | 0.314 | 0.119 | 0.179 | 0.032 | 0.161 | 0.078 | 0.11 | 0.005 | 0.001 |
| Industry - Banks | 0.316 | 0.121 | 0.195 | 0.032 | 0.167 | 0.066 | 0.097 | 0.005 | 0.001 |
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Industry - Banks | 628.39% | 0.4229 | 14.5201 |
| Industry - Regional banks | 668% | 0.4820 | 13.5465 |
| Industry - Regional Banking | 668% | 0.4820 | 13.5463 |
| Sector - Financials | 175.49% | 0.2133 | 7.9743 |
| Sector - Retail | 151.03% | 0.2678 | 5.4550 |
| Industry - Oil & Gas Exploration | 128.07% | 0.2555 | 4.8361 |
| Sector - Technology | 81.76% | 0.1765 | 4.4305 |
| Sector - Materials | 72.19% | 0.1816 | 3.7893 |
| Sector - Industrials | 50.65% | 0.1281 | 3.7227 |
| Sector - Energy | 89.16% | 0.2318 | 3.6855 |
| Benchmark (Wilshire 5k) | 40.61% | 0.1304 | 2.9006 |
| Oil | 85.28% | 0.2929 | 2.7868 |
| Sector - Consumer Discretionary | 57.86% | 0.2244 | 2.4393 |
| Sector - Consumer Staples | 31.59% | 0.1210 | 2.3967 |
| Currency - U.S. Dollar | 23.4% | 0.0960 | 2.1845 |
| Agriculture | 37.41% | 0.1715 | 2.0234 |
| Currency - Canadian Dollar | 7.07% | 0.0792 | 0.6253 |
| Sector - Health Care | 4.11% | 0.1111 | 0.1847 |
| Physical Energy | 4.34% | 0.2407 | 0.0948 |
| Weat | 1.35% | 0.2775 | -0.0235 |
| Corn | -7.27% | 0.2515 | -0.3618 |
| Currency - AU Dollar | -4.57% | 0.1020 | -0.6333 |
| Natural Gas | -23.72% | 0.3579 | -0.7050 |
| Industry - Home Construction | -27.55% | 0.3275 | -0.8850 |
| Gasoline | -25.09% | 0.2929 | -0.9073 |
| Currency - Emerging | -5.59% | 0.0750 | -0.9952 |
| Currency - Euro | -9.73% | 0.0982 | -1.1718 |
| Commodity Index | -20.56% | 0.1853 | -1.1948 |
| Soybean | -24.82% | 0.2030 | -1.2960 |
| Brent Oil | -47.65% | 0.2872 | -1.6951 |
| Sector - Utilities | -28.08% | 0.1515 | -1.9478 |
| Currency - GBP Sterling | -15.3% | 0.0783 | -2.1691 |
| Silver | -91.03% | 0.3103 | -2.9391 |
| Currency - Japanese Yen | -79.17% | 0.1826 | -4.3584 |
| Gold | -67.1% | 0.1457 | -4.6509 |
| Currency - Swiss Franc | -30.37% | 0.0493 | -6.4389 |
Factor Analysis Best performers
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Industry - Regional Banking | 668% | 0.4820 | 13.5463 |
| Industry - Regional banks | 668% | 0.4820 | 13.5465 |
| Industry - Banks | 628.39% | 0.4229 | 14.5201 |
| Sector - Financials | 175.49% | 0.2133 | 7.9743 |
| Sector - Retail | 151.03% | 0.2678 | 5.4550 |
Important
Avoid the following equity classes:
| Return | Std Dev | Sharpe | |
|---|---|---|---|
| Currency - Swiss Franc | -30.37% | 0.0493 | -6.4389 |
| Brent Oil | -47.65% | 0.2872 | -1.6951 |
| Gold | -67.1% | 0.1457 | -4.6509 |
| Currency - Japanese Yen | -79.17% | 0.1826 | -4.3584 |
| Silver | -91.03% | 0.3103 | -2.9391 |
Relative Stregnth Analysis
Relative strength is a strategy used in momentum investing and identifying value stocks. It focuses on investing in stocks or other investments that have performed well close to the market or relevant benchmark. We use relative strength to confirm our assumptions about our expectations. We should see outperformance compared to the benchmark and peers if our assumptions are correct.
Rotation Analysis
A rotation chart can help identify the momentum of a trend. The top-left quadrant is a developing trend, just starting to unfold. The top-right quadrant is a developed trend. A weakening trend is in the bottom-right. And the last quadrant, the bottom-left, is a downtrend.
Relative Rotation, to the market
Rotation Chart
Trend Anlaysis
Trend following is a trading style that attempts to capture gains by analyzing an asset’s momentum in a particular direction. When the price moves in one overall direction, such as up or down, that is called a trend.
Trend traders enter into a long position when security is trending upward. An uptrend is characterized by higher swing lows and higher swing highs. Likewise, trend traders may opt to enter a short position when an asset is trending lower. Or, in our case, managing long-only, chose to avoid securities that are trending down. A downtrend is characterized by lower swing lows and lower swing highs.
Having predefined rules on what is and isn’t a trend also provides us with a method for controlling risk. We know at what price we would not consider being invested in a position. Following our trend system, we always know when we should cut our losses.
Trend Table & Rolling Performance
| Trend | Efficiency Ratio | One Month | Three Month | Six Month | One Year | Drawdown | |
|---|---|---|---|---|---|---|---|
| Sector - Technology | 0.17 | 3.49 | 9.98 | 27.61 | 16.77 | -0.17 | |
| Industry - Home Construction | 0.22 | 7.99 | 10.56 | 42.01 | 36.55 | -0.32 | |
| Currency - Emerging | -0.21 | 0.11 | 2.27 | 8.98 | 4.64 | -0.73 | |
| Currency - GBP Sterling | -0.22 | 0.92 | 3.67 | 9.87 | 1.26 | -1.32 | |
| Currency - Swiss Franc | -0.05 | -0.04 | 2.73 | 10.41 | 9.21 | -1.65 | |
| Sector - Consumer Staples | -0.25 | 0.77 | 4.48 | 6.11 | 6.14 | -2.03 | |
| Currency - Euro | 0.2 | -0.84 | 1.55 | 8.91 | 3.29 | -2.31 | |
| Gold | -0.26 | -0.7 | 6.27 | 17.74 | 8.74 | -3.73 | |
| Sector - Industrials | -0.07 | -1.31 | -2.78 | 4.45 | 8.48 | -4.68 | |
| Currency - Canadian Dollar | 0 | -0.38 | -0.71 | 0.32 | -4.12 | -6.81 | |
| Sector - Health Care | -0.15 | -2.56 | -1.11 | 0.16 | 2.41 | -7.58 | |
| Agriculture | -0.12 | -1.98 | 2.97 | 3.43 | -7.23 | -7.6 | |
| Currency - AU Dollar | -0.09 | -0.6 | -3.68 | 2.97 | -4.29 | -8.31 | |
| Currency - U.S. Dollar | 0.1 | 1.15 | 0.57 | -5.67 | 1.33 | -8.52 | |
| Currency - Japanese Yen | 0.01 | -2.42 | -4.6 | 6.34 | -7.38 | -8.73 | |
| Silver | -0.02 | -5.21 | 7.81 | 13.29 | 10.59 | -8.86 | |
| Sector - Materials | -0.22 | -4.21 | -4.95 | 3.38 | -4.96 | -11.63 | |
| Sector - Financials | -0.24 | -2.29 | -10.93 | -4.16 | -2.11 | -12.42 | |
| Sector - Consumer Discretionary | 0.13 | 1.72 | 1.58 | 9.45 | 5.39 | -13.89 | |
| Sector - Utilities | -0.03 | -4.13 | -1.92 | -1.01 | -7.37 | -15.1 | |
| Soybean | 0.26 | -8.67 | -12.22 | -10.13 | -10.93 | -15.16 | |
| Sector - Energy | 0.01 | -8.98 | -13.03 | -14.18 | -3.99 | -17.16 | |
| Sector - Retail | -0.16 | -1.55 | -10.64 | 1.17 | -1.91 | -18.82 | |
| Corn | 0.21 | -12.36 | -16.73 | -18.53 | -23.87 | -24.82 | |
| Commodity Index | -0.16 | -5.83 | -5.67 | -13.66 | -16.76 | -25.1 | |
| Gasoline | -0.14 | -5.83 | -1.43 | -8.34 | -10.52 | -25.93 | |
| Brent Oil | -0.22 | -8.72 | -9.36 | -19.75 | -17.39 | -29.31 | |
| Industry - Oil & Gas Exploration | -0.2 | -8.8 | -14.5 | -22.59 | -11.5 | -29.44 | |
| Oil | -0.2 | -8.81 | -7.54 | -15.91 | -18.53 | -29.93 | |
| Industry - Banks | -0.24 | -6.81 | -29.41 | -27.75 | -24.85 | -33.8 | |
| Physical Energy | -0.24 | -7.12 | -8.7 | -24.72 | -22.63 | -35 | |
| Industry - Regional Banking | -0.21 | -8.93 | -37.01 | -37.38 | -34.47 | -42.35 | |
| Industry - Regional banks | -0.21 | -8.93 | -37.01 | -37.38 | -34.47 | -42.35 | |
| Weat | -0.16 | -10.91 | -21.38 | -27.87 | -47.58 | -47.5 | |
| Natural Gas | -0.21 | -3.23 | -21.5 | -66.86 | -75.78 | -80 |
Summary
To build a tactical portfolio, we need to understand and set expectations. We start with our macro and factor models. We then need to confirm our assumptions with a relative strength analysis. Finally, we want the ability to control the downside risk when things do not go as expected. We use a trend analysis that sets the point that we will exit no matter what.
| E(r) Business Clycle | E(r) Factor | Relative Rotation | Absolute Rotation | Trend | Efficiency | Drawdown | |
|---|---|---|---|---|---|---|---|
| Sector - Technology | -0.17 | ||||||
| Industry - Home Construction | -0.32 | ||||||
| Currency - Emerging | -0.73 | ||||||
| Currency - GBP Sterling | -1.32 | ||||||
| Currency - Swiss Franc | -1.65 | ||||||
| Sector - Consumer Staples | -2.03 | ||||||
| Currency - Euro | -2.31 | ||||||
| Gold | -3.73 | ||||||
| Sector - Industrials | -4.68 | ||||||
| Currency - Canadian Dollar | -6.81 | ||||||
| Sector - Health Care | -7.58 | ||||||
| Agriculture | -7.6 | ||||||
| Currency - AU Dollar | -8.31 | ||||||
| Currency - U.S. Dollar | -8.52 | ||||||
| Currency - Japanese Yen | -8.73 | ||||||
| Silver | -8.86 | ||||||
| Sector - Materials | -11.63 | ||||||
| Sector - Financials | -12.42 | ||||||
| Sector - Consumer Discretionary | -13.89 | ||||||
| Sector - Utilities | -15.1 | ||||||
| Soybean | -15.16 | ||||||
| Sector - Energy | -17.16 | ||||||
| Sector - Retail | -18.82 | ||||||
| Corn | -24.82 | ||||||
| Commodity Index | -25.1 | ||||||
| Gasoline | -25.93 | ||||||
| Brent Oil | -29.31 | ||||||
| Industry - Oil & Gas Exploration | -29.44 | ||||||
| Oil | -29.93 | ||||||
| Industry - Banks | -33.8 | ||||||
| Physical Energy | -35 | ||||||
| Industry - Regional Banking | -42.35 | ||||||
| Industry - Regional banks | -42.35 | ||||||
| Weat | -47.5 | ||||||
| Natural Gas | -80 |