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S&P Sectors

quantf research Strategies

Strategies Long Short
Strategy 1 XLE XLK
Strategy 1 XLP XLF
Strategy 1 XLU XLY
Strategy 2 XLV XLE
Strategy 2 XLV XLP
Strategy 2 XLV XLU
Standard Momenum XLK XLE
Standard Momenum XLF XLP
Standard Momenum XLY XLU

Historical Cumulative Return

Performance Evaluation

Statistics Strategy 1 Strategy 2 Standard Momentum Market (SPY)
Average 0.13 0.21 0.11 0.11
Volatility 0.20 0.21 0.17 0.18
Sharpe 0.65 0.98 0.66 0.61
Max 0.14 0.16 0.10 0.15
Min -0.13 -0.07 -0.07 -0.10
Cumulative 4.34 15.40 3.42 3.15
Drawdown 0.51 0.36 0.48 0.55
Duration 702.00 239.00 1168.00 1223.00
Profit/Loss 0.96 1.00 0.93 0.90
Win Rate 0.54 0.54 0.55 0.55
Expectation 0.06 0.08 0.06 0.05

What is the quantf research S&P Sectors ETF Momentum Trading all about?

The quantf research S&P Sectors ETF Momentum Trading is a product of quantf research website (www.quantf.com). It provides trading recommendations for 9 sectoral ETFs of S&P500 (XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY) based on the traditional cross-sectional momentum (i.e. buy the winners and sell the losers) and quantf research S&P Sectors ETF Momentum Methodology. Our adaptation uses parts of the Papailias and Thomakos (Forthcoming) methodology and the working paper is forthcoming.

How do I read the quantf research S&P Sectors ETF Momentum Trading Strategies table?

There are three investment strategies on the quantf research S&P Sectors ETF Momentum Trading Strategies table. Strategy 1 and Strategy 2 are based on the quantf research S&P Sectors ETF Momentum Methodology. Standard momentum strategy uses the standard cross-sectional momentum with 1 year of daily data for ranking the ETFs (12 months is a popular choice for calculating momentum strategies in the related literature). All strategies consist of three recommendations (three lines on the table). For each recommendation one buys the winner (column title: Long) and sells the loser (column title: Short). Then, an equally weighted portfolio of these three choices is constructed. 

What are the differences among the quantf research S&P Sectors ETF Momentum Trading Strategies?

The difference between the strategies is the aggressiveness. quantf research S&P Sectors ETF Momentum Trading Strategy 1 is less aggressive than quantf research S&P Sectors ETF Momentum Trading Strategy. 

How do I read the Historical Cumulative Return Figure?

The quantf research Historical Cumulative Return Figure illustrates the cumulative return an investor has by investing in each one of the suggested strategies (including the market portfolio (SPY) that acts as a benchmark).

What do all the statistics mean?

  • Average: the annualised arithmetic mean return of the respective strategy. The typical investor wishes for large average values.
  • Volatility: the annualized standard deviation of the respective strategy. The typical investor wishes for small volatility values.
  • Sharpe: the ratio of average over volatility. The typical investor wishes for large Sharpe Ratio values.
  • Max: the maximum daily return of the respective strategy.
  • Min: the minimum daily return of the respective strategy.
  • Cumulative: the cumulative return of the respective strategy. The typical investor wishes for large Cumulative values. This is expressed in decimals instead of percentage; e.g. 1.00 instead of 100%.
  • Drawdown: the maximum drawdown of the respective strategy. The maximum drawdown could be simply interpreted as the largest decline in ETF value in percent from a historical peak. The typical investor wishes for small drawdown values.
  • Profit/Loss: the ratio of the arithmetic mean of positive returns over the (absolute value) of the arithmetic mean of negative returns. The typical investor wishes for large Profit/Loss values.
  • Win Rate: the percentage of time that the strategy exhibits positive returns.
  • Expectation: indicator of anticipated performance computed as (1+Profit/Loss)*(Win Rate) – 1.

 

Why are the last 11 periods used?

A fixed rolling window period of 11 past observations is used for two reasons: first, an extensive backtesting indicates that this number is a reasonable one in terms of robustness to alternatives and overall performance and risk management; second, it is meant to account for short-term changes in asset behaviour in a time frame that is consistent with trading strategies suggested elsewhere on quantf research website. One would, of course, get different results from the use of another rolling window 

How often are new trading picks suggested?

New signals are provided on a daily basis (US holidays and all other dates where NYSE market is closed are excluded).

What is the source of the data used?

In all computations the data is collected from Yahoo! Finance (finance.yahoo.com). quantf research is not responsible for the accuracy of the data. quantf research does not redistribute the data which are used exclusively for research and information purposes.

What are the ETFs used in this strategy?

Here follows a table of all the ETFs used in the quantf research S&P Sectors ETF Momentum Trading product. All descriptions and details are taken from the ETF Database website.

 

S&P Sectors

  • XLY: This ETF tracks the Consumer Discretionary Select Sector Index. This index includes companies from the following industries: retail (specialty, multi-line, internet and catalog); media; hotels, restaurants & leisure; household durables; textiles, apparel & luxury goods; automobiles, auto components and distributors; leisure equipment & products; and diversified consumer services. Issued by State Street SPDR.
  • XLP: This ETF tracks the Consumer Staples Select Sector Index. This index includes companies from the following industries: food & staples retailing; household products; food products; beverages; tobacco; and personal products. Issued by State Street SPDR.
  • XLE: This ETF tracks the Energy Select Sector Index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services. Issued by State Street SPDR.
  • XLV: This ETF tracks the Health Care Select Sector Index. This index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology. Issued by State Street SPDR.
  • XLI: This ETF tracks the Industrial Select Sector Index. This index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. Issued by State Street SPDR.
  • XLB: This ETF tracks the Materials Select Sector Index. This index includes companies from the following industries: chemicals; metals & mining; paper & forest products; containers & packaging; and construction materials. Issued by State Street SPDR.
  • XLK: This ETF tracks the Technology Select Sector Index. This includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics. Issued by State Street SPDR.
  • XLU: This ETF tracks the Utilities Select Sector Index. This index includes companies from the following industries: electric utilities; multi-utilities; independent power producers & energy traders; and gas utilities. Issued by State Street SPDR.
  • XLF: This ETF tracks the Financial Select Sector Index. The index includes companies from the following industries: diversified financial services; insurance; commercial banks; capital markets; real estate investment trusts; thrift & mortgage finance; consumer finance; and real estate management & development.

 

 

References

Papailias, F., Thomakos, D. D. (Forthcoming). Improved Momentum Strategies. quantf research working paper series.

  
F. Papailias - D. Thomakos, (c) 2014
 
 
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Disclaimer: The contents of quantf research (c) website (http://www.quantf.com) are provided for research and information purposes only. Prices, returns, strategy recommendations and all statistical estimates in general shown in this webpage are indicative and the authors are not offering to buy or sell or soliciting offers to buy or sell any financial instrument. The views in this website are those of the authors alone and are subject to change at any time. The authors of this webpage do not accept any liability whatsoever for any direct or consequential loss arising from any use of the information provided. The information in this webpage is not intended to predict actual results, which may differ substantially from those presented.