Abstract

http://ssrn.com/abstract=2417974
 


 



An Intermarket Approach to Beta Rotation: The Strategy, Signal, and Power of Utilities


Charles V. Bilello


Pension Partners, LLC

Michael A. Gayed


Pension Partners, LLC

January 31, 2014

2014 Charles H. Dow Award Winner

Abstract:     
It is often said by proponents of the Efficient Market Hypothesis that no strategy can consistently outperform a simple buy and hold investment in broad stock averages over time. However, using a strategy based on the principles of intermarket analysis, we find that this assertion is not entirely accurate. The Utilities sector has many unique characteristics relative to other sectors of the broader stock market, including its higher yield, lower beta, and relative insensitivity to cyclical behavior. Our analysis suggests that rolling outperformance in the sector is not only exploitable, but also provides important signals about market volatility, seasonality, and extreme market movement. We explore historical price behavior and create a simple buy and rotate strategy that is continuously exposed to equities, positioning into either the broad market or the Utilities sector based on lead-lag dynamics. Absolute performance and risk-adjusted returns for this beta rotation approach significantly outperform a buy and hold strategy of the market and of the Utilities sector throughout multiple market cycles.

Number of Pages in PDF File: 16

Keywords: Intermarket Analysis, Stocks, Utilities, Trading, Market, Momentum, Rotation, Volatility, Alpha, Beta, Equities, Sectors, Quantitative, Efficient Markets, Hedge, Asset Allocation

JEL Classification: C00, C10, C50, G00, G11

working papers series





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Date posted: March 31, 2014  

Suggested Citation

Bilello, Charles V. and Gayed, Michael A., An Intermarket Approach to Beta Rotation: The Strategy, Signal, and Power of Utilities (January 31, 2014). 2014 Charles H. Dow Award Winner. Available at SSRN: http://ssrn.com/abstract=2417974 or http://dx.doi.org/10.2139/ssrn.2417974

Contact Information

Charles V. Bilello
Pension Partners, LLC ( email )
430 West 14th Street
Suite 505
New York, NY 10014
United States
212-255-5000 (Phone)
HOME PAGE: http://www.pensionpartners.com
Michael A. Gayed (Contact Author)
Pension Partners, LLC ( email )
430 West 14th Street
Suite 505
New York, NY 10014
United States
2122555000 (Phone)
HOME PAGE: http://www.pensionpartners.com
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