Home / Ideas / Protective Asset Allocation (PAA)
Protective Asset Allocation (PAA)
multi-market breadth sets a continuous bond fraction
Rather than a binary risk-on/off switch, PAA counts how many assets in a broad universe are above their 12-month moving average and uses that breadth to scale a continuous cash/bond fraction, giving smoother de-risking; with the 60/40 diversification benefit degrading into 2026 this graduated protection is attractive versus all-or-nothing models.
Universe
12 ETFs (e.g. SPY, QQQ, IWM, VGK, EWJ, EEM, VNQ, DBC, GLD, HYG, LQD, TLT) plus IEF as the safe asset.
How it works
Monthly, hold the top-6 assets whose price/12-month-SMA ratio is highest and positive; set the defensive IEF fraction from a protection factor driven by the count of universe assets below their SMA (more assets below trend => larger IEF weight), rebalance monthly.
Expected performance
Research-derived Sharpe estimate: 0.6–0.9.
Backtest this idea with SignalChain
This is a research lead — not a finished backtest. SignalChain takes an idea like this and runs the whole pipeline inside Claude Code: it researches the concept against academic and practitioner sources, sets benchmarks, writes and lints a VectorBT backtest, runs it, and grades the result PASS/FAIL. One command:
/signalchain PAA: monthly top-6 of 12 ETFs by price/12mo-SMA; scale IEF fraction by count of universe assets below their SMA
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Research & sources
- papers.ssrn.com — papers.ssrn.com
- morganstanley.com — morganstanley.com
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Not financial advice. This page describes a research idea, not a recommendation. Any performance figures are hypothetical, research-derived estimates and are not indicative of future results. SignalChain is a research and educational tool; you are solely responsible for any decisions you make.