We propose a model that is designed to identify bull-market and bear-market regimes. We examine correlation between stocks and bonds as a signal. Our hypothesis is that negative correlation between long bonds and stocks represents a bear-market regime, and a positive, or non-existent correlation, reflects a bull market regime.
Correlation-Based Allocation (CBA) is a one-signal model that is simple-to-implement, robust, and historically generates a favorable risk/reward return profile.
As tested, the performance looked pretty good:
Sanz Prophet takes the CBA analysis to another level and conducts a thorough data-mining exercise to determine the optimal way of implementing CBA. Amazing and simultaneously humbling work–wish I had these skills!
Here is a quick shot from the website’s analysis:
I’ll be adding Sanz Prophet to my RSS and added them onto our blogroll.
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