Paired-Switching for Tactical Portfolio Allocation

4 Pages Posted: 26 Aug 2011 Last revised: 21 Sep 2011

Date Written: August 22, 2011

Abstract

Paired-switching refers to investing in one of a pair of negatively correlated equities/ETFs/Funds and periodic switching of the position on the basis of either the relative performance of the two equities/ETFs/Funds over a period immediately prior to the switching or some other criterion. It is based upon the idea that if the returns of two equities are negatively correlated, the overlapping of the periods during which the equities individually yield returns greater than their mean values will be infrequent. Consequently, if the criterion for switching is even minimally accurate in its ability to identify the boundaries of such periods, there is a possibility of improving the performance of the portfolio consisting of the two equities over the portfolio wherein the two equities are statically weighted on the basis of traditional methods such as, for example, variance minimization. In this paper we present some results that indicate that some very simple criteria for paired-switching can lead to lower volatility without any significant penalty in terms of lower returns.

Keywords: tactical allocation, stocks, bonds, quantitative, momentum, ETFs

JEL Classification: G11, C10, C50, E00

Suggested Citation

Maewal, Akhilesh and Bock, Joel R., Paired-Switching for Tactical Portfolio Allocation (August 22, 2011). Available at SSRN: https://ssrn.com/abstract=1917044 or http://dx.doi.org/10.2139/ssrn.1917044

Akhilesh Maewal (Contact Author)

Scalaton ( email )

4637 3RD Street
La Mesa, CA 91941
United States

Joel R Bock

Scalaton ( email )

4637 3rd Street
La Mesa, CA 91941
United States

Paper statistics

Downloads
2,671
Rank
3,206
Abstract Views
10,390