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2003issue C071-5

A one-fund daily rank is a two-sleeve construction problem

Unused cash between long signals is an idle sleeve, not a neutral rest state. Combined long-and-short rank rotation (ORLS) adds complementary short-sleeve rotation (ORS) to long-only rank rotation (ORL) so the same ranking stays fully invested as a two-state book.

  • ORLS is the sum of the ORL sleeve and the ORS sleeve, so the account stays fully invested instead of parking unused capital in cash between long signals.
  • On a net-up-day basis the combined book equals total trading days minus four days per streak, because each sleeve spends two days per streak on execution lag.
  • ORS adds net-positive days only when the annual streak count stays below a bias-dependent threshold of about 57 streaks at a 0.55 bias over 252 sessions, and the archive marks elevated risk once streaks exceed 63.
  • The workflow is daily ranking with same-day execution near the fund close, about two switches a week, a highly correlated surrogate index, and vehicles that can be switched often at negligible cost.
Entries in this reading2 entries
Momentum strategy14 readingsCurrent trackRank rotation44 readings

The combined book is two complementary sleeves

Combined long-and-short rank rotation, or ORLS, is defined as the sum of long-only rank rotation (ORL) and complementary short-sleeve rotation (ORS). The account stays fully invested rather than parking unused capital in cash between long signals.

Rank rotation and momentum strategy share that one ranking. The long sleeve is either in the fund or out of it, and the short sleeve is the complement of that state, so unused cash is treated as a second sleeve instead of a vacant rest period.

ORLS versus buy-and-hold annualized return by sector fund

The same one-fund daily rank, run as a fully invested long-plus-short book, lifts annualized return well above buy-and-hold on almost every Fidelity Select sector fund in Brown's results table. Food and agriculture is the exception, where the switch rate sits near the cutoff that makes the short sleeve uneconomic. The bars are the BH Ann % and ORLS Ann % columns printed in that table.
The same one-fund daily rank, run as a fully invested long-plus-short book, lifts annualized return well above buy-and-hold on almost every Fidelity Select sector fund in Brown's results table. Food and agriculture is the exception, where the switch rate sits near the cutoff that makes the short sleeve uneconomic. The bars are the BH Ann % and ORLS Ann % columns printed in that table.Fidelity Select sector funds

Inverse sleeves were synthesized as daily inverse returns of each long fund in FastTrack because live short products were not in that database window. Only rows with both annual-return columns intact in the supplied excerpt are plotted.

Holding-period math is checked on streak counts

On a net-up-day basis the combined book equals total trading days minus four days per streak, because each sleeve spends two days per streak on execution lag. A streak is a run of same-direction days that sets the switch count.

The short sleeve adds net-positive days only when the annual streak count stays below half the trading-day count times one minus bias. Bias is the share of up days inside each streak period. With a 0.55 bias and 252 sessions that threshold is about 57 streaks.

Compounded gain of the short sleeve can be recovered as long-only gain divided by buy-and-hold gain. Combined gain is then the product of the two sleeves and does not require building a synthetic inverse series first.

At 126 streaks a year the combined book can lose both days in a two-day period. The archive uses that case to mark elevated risk once the streak count exceeds 63.

Daily ranking near the fund close

The procedure is framed as daily ranking plus same-day execution near the fund close, averaging about two switches a week. It is described as unsuitable for casual, low-frequency operation.

Implementation is restricted to vehicles that can be switched often at negligible cost and that exhibit a low annual streak count, cited as fewer than 63. That pairing of cheap frequent switches and a low streak count is described as uncommon among mutual funds.

A same-day, highly correlated surrogate index is required so buy and sell decisions can be placed just before the mutual-fund close. Moving the decision a few minutes earlier is treated as a small operational change, not a different rule set.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
13 of 32 in the Rank rotation track
20041-4 pp.Next on Rank rotationEvaluate rank rotation only where persistence already existsA one-rank rule buys a single fund when that day’s return is positive and sells when the day’s return is negative. Multiple-fund ranking stays invested only in the current top-ranked fund and exits when that name loses the top rank.
All readings on this track · 32 readings
  1. 1987A mechanical rank-rotation sleeve for monthly fund leaders
  2. 1989Rank rotation in a five-name no-load sleeve
  3. 1990Cycle-tested five-year fund rank rotation
  4. 1991Blue-chip rank rotation by relative-strength-index slope
  5. 1992Currency rank rotation and intermarket timing
  6. 1992Rank rotation and relative strength for portfolio construction
  7. 1994MACD crossovers then short-horizon rank rotation
  8. 1994A comparable group-trend ledger from published ranks
  9. 1997Normalized yield rank rotation as a full portfolio procedure
  10. 1997Constructing an investor preference index from two capitalization-weighted series
  11. 1998Constructing anchored momentum from a centered average
  12. 2000Rank rotation, a stop-loss order, and Relative Strength Index in fund switching
  13. 2003A one-fund daily rank is a two-sleeve construction problem
  14. 2004Evaluate rank rotation only where persistence already exists
  15. 2004Sector fund rank rotation with regression and trailing stops
  16. 2006Evaluating equal-weight annual yield-rank rotation
  17. 2007Weekly preferred-symbol reselection for mechanical trend systems
  18. 2011Portfolio capacity and entry pacing for mechanical systems
  19. 2011Rank rotation as a testable ETF construction procedure
  20. 2011The inverse-Fisher stochastic is a forecast layer until the book rules can be disabled
  21. 2012An underwater stretch is a sizing test for rank rotation
  22. 2015Rule-based ETF rotation as one testable procedure
  23. 2015MACD crossover evaluation by trend rank rotation
  24. 2015Persistence and strength as one close-to-close switch
  25. 2015Evaluating rank rotation after a persistence screen
  26. 2016Evaluating an annual valuation rank rotation
  27. 2017A two-step yield and price rank rotation for a five-name sleeve
  28. 2018Smoothed volatility and the missing rank-rotation exit
  29. 2018A five-condition scorecard that ranks stocks and can refuse the trade
  30. 2018Small-cap growth sleeve eligibility with trend and rank rotation
  31. 2018Evaluating rank-rotation momentum across fund wrappers
  32. 2019Evaluating an annual equity-gold momentum rank rotation
By fieldPortfolio construction35 readingsBy year200312 readings
All 44 readings tagged Rank rotation
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