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Volatility-Managed Sector Momentum
scale sector-momentum exposure inversely to its own realized volatility
Du Plessis & Hallerbach show volatility weighting improves the Sharpe of industry-portfolio momentum by both timing and stabilizing risk; Rothe's dynamic sector-rotation whitepaper combines momentum with a realized-vol risk overlay to cut drawdown versus the S&P 500 momentum index. Realized vol is computed straight from daily OHLCV, so it is fully free-data backtestable.
Universe
11 SPDR sector ETFs, with a cash proxy (BIL/SHY) absorbing the de-risked weight.
How it works
Monthly, select top-N sectors by 6–12 month momentum, then set each weight proportional to (target vol / trailing 20–60 day realized vol), capping gross exposure at 100% and holding cash for the remainder.
Expected performance
Research-derived Sharpe estimate: 0.7–1.1. .
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 Monthly sector-momentum rotation over 11 SPDR ETFs, size each holding inversely to its 40-day realized volatility, remainder in cash
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Research & sources
- papers.ssrn.com — papers.ssrn.com
- ssrn.com — 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.