Strategy - Paired Switching (American)

Overview

A simple strategy that switches between equities and long-term bonds based on relative momentum. Takes advantage of relative momentum, the observation that an asset's past performance relative to another asset can predict its future performance.

Past Performance

  • Provided protection during bear markets by switching from a poorly performing asset class to a better performing one which limited losses from downturns by switching from equities to bonds.
  • Relatively ineffecient in bull markets compared to Couch Potato strategies due to higher transaction costs and whipsaws in asset prices.
  • Higher returns, lower drawdowns, and better risk-adjusted performance compared to Couch Potato portfolios in past market cycles (such as 2008-present).
  • Protection provided during downturns led to greater overall return, even with realtive underperformance in bull markets.

Source Information

Based on the paper 'Simple and Effective Market Timing with Tactical Asset Allocation' by Lewis A. Glenn.

Trading Information

Low transaction costs as assets are generally adjusted only a handful of times a year.

Risk Level

High

Assets

Name Symbol
American 20+ Year Treasuries TLT
S&P 500 SPY

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Strategy Backtest

The information below shows how well this strategy performed in the past so that you can determine if it would be a good fit for you. The strategy backtest results are shown compared against the "Couch Potato - Balanced" benchmark strategy.

$10,000

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