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2004issue C101-6

Sector fund rank rotation with regression and trailing stops

A sector fund concentrates holdings in one industry sleeve, so that sleeve can lag or move against the broader market. The editorial reading is a veto chain: a least-squares forecast never becomes a trade by itself, only a relative gain-to-risk rank can select a name, and only a trailing stop can force rotation or a deliberate wait.

  • Sector funds can lag or move against the broader market because they concentrate in one industry sleeve, so a ranking signal based on expected performance is treated as the missing piece.
  • Linear regression fits a least-squares line to ordered net asset values and supplies slope, fitted gain and residuals. That forecast is not an entry.
  • Only a positive top gain-to-risk rank is eligible. Rank rotation switches only after a trailing stop and only if a different positive leader is present; otherwise the system waits.
  • Summing every name's gain-to-risk score on a given day yields a sector-trend composite used as a short-horizon market-state check, not as a substitute for the rank or the stop.
Entries in this reading3 entries
Linear regression9 readingsTrailing stop16 readingsCurrent trackRank rotation44 readings

Why sector funds need a ranking signal

A sector fund concentrates holdings in one industry sleeve, so that sleeve can lag or move against the broader market.

Generic moving averages and hand-drawn trendlines are treated as incomplete for sector work. The missing piece is a ranking signal based on expected performance.

The forecast stays a forecast

Linear regression is a least-squares line through ordered net asset values. It supplies slope, fitted gain and residuals for a forecast score, and the fit minimizes the sum of squared deviations from those observations.

The forecast step gathers a recent window of daily net asset values and fits a line over each recent day with a defined lookback. That line is a quantitative baseline for a score, not a reason to buy.

Only a positive top rank may be held

A gain-to-risk score is the lookback percentage change of the fitted line divided by the residual standard deviation. Names are ranked on that score, and only a positive top rank is eligible.

Rank rotation is a holding-period procedure that ranks candidates by the score, holds the current top name, and switches only when a stop fires and a different positive leader appears.

State check, stop, then wait or rotate

Summing the gain-to-risk score of every name on a given day yields a sector-trend composite. The archive uses that composite as a short-horizon market-state check.

After entry, a trailing stop exits the holding. The stop is a percentage stop that trails price to bound loss and lock gains, then forces a fresh rank check before any re-entry.

The next purchase is the current top-ranked name only if it is a different fund and its gain-to-risk score is positive. Otherwise the system waits.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
15 of 32 in the Rank rotation track
20061-3 pp.Next on Rank rotationEvaluating equal-weight annual yield-rank rotationThe mechanical-trading-system buys an equal-weight basket of the ten highest-yielding members of a major blue-chip index on the final trading session of the year and holds that book until the next annual reset.
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 fieldSystem design5 readingsBy year200412 readings
All 44 readings tagged Rank rotation
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