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Short-Term Sector Reversal
buy last month's laggard sectors, fade last month's leaders
Nadler & Schmidt document that over short (roughly one-month) formation windows, US sector SPDRs show mean reversion — past losers tend to outperform past winners next month — the mirror image of the 12-month momentum effect. This is a genuinely different angle (reversal, not trend) and diversifies a momentum-heavy book, though the edge is thinner and cost-sensitive.
Universe
11 SPDR sector ETFs (XLK, XLF, XLE, XLV, XLI, XLP, XLY, XLU, XLB, XLRE, XLC).
How it works
Monthly, rank sectors by trailing 21-day return, go long the bottom 3 (equal weight) and optionally short the top 3 or SPY, holding one month.
Expected performance
Research-derived Sharpe estimate: 0.3–0.7. .
Backtest this idea with SignalChain
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/signalchain Monthly reversal on 11 SPDR sector ETFs, long the bottom 3 by trailing 21-day return, equal weight, one-month hold
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Research & sources
- papers.ssrn.com — papers.ssrn.com
- quantpedia.com — quantpedia.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.