Hello everyone,

I want to share my first algorithm based on this paper: An Intermarket Approach to Beta Rotation

I used the two ETFs (XLU and VTI) mentioned in the paper. For the calculation of the Relative Strength between these two markets I followed this example: Relative Strength Example

The result of the algorithms can be found below this post.

Biggest disadvantage of this strategy are the drawdowns during the backtesting period. The usage of Stop-Loss Orders didn't reduce the draw down during my backtests. I also tried a couple of different ETFs. One, for example, can get a higher overall return by using QQQ instead of VTI. Other low beta ETFs than XLU didn't improve the performance of the algorithm significantly. Using the ETF TLT as a negative beta ETF kept the equity curve flat from 2010 until the end of 2017.

The algorithm can be used for very long term oriented portfolios. The signal was backtested from 1926 to 2013 in the paper. A strategy using XLU and VTI was backtested from 2001 to 2013.