SPDR Relativ Sector Momentum

The SPDR Relativ Sector Momentum Indicator is designed to evaluate the momentum of key U.S. market sectors relative to the broader market, represented by the S&P 500 Index (SPY). This indicator uses momentum-based techniques to assess sector performance and highlight relative strength or weakness over a given period. It leverages rate of change (ROC) as the primary momentum measure and incorporates smoothing via a simple moving average (SMA).

Methodology

This measure is smoothed over a configurable length (default: 20 periods) to filter noise and highlight trends. Sector momentum is computed for 11 key SPDR ETFs:

• XLE: Energy
• XLB: Materials
• XLI: Industrials
• XLY: Consumer Discretionary
• XLP: Consumer Staples
• XLV: Healthcare
• XLF: Financials
• XLK: Technology
• XLC: Communication Services
• XLU: Utilities
• XLRE: Real Estate

Momentum for the SPY is calculated similarly and serves as a benchmark.

Visualization

The indicator displays relative momentum values in a structured table, with high-contrast colors for better readability. The table dynamically updates sector performance, allowing users to easily track which sectors are outperforming or underperforming SPY. Additionally, the relative momentum values are plotted as individual lines around a zero baseline, providing visual confirmation of trends.

Applications

1. Portfolio Allocation: By identifying leading and lagging sectors, investors can allocate resources to sectors with strong momentum and reduce exposure to weaker sectors.

2. Trend Identification: The zero baseline helps users distinguish between sectors with positive and negative relative momentum.

3. Momentum Trading: The indicator aids in trading strategies that capitalize on sector rotations by highlighting momentum shifts.

Theoretical Background

Momentum strategies are grounded in behavioral finance theory and empirical research. They exploit the tendency of securities with strong past performance to continue outperforming in the short term. Jegadeesh and Titman (1993) demonstrated that momentum strategies yield significant returns over intermediate horizons (3-12 months). Applying this framework to sectors enhances the granularity of momentum analysis.

Limitations

While momentum strategies have shown historical efficacy, they are prone to mean reversion during periods of market instability (Barroso & Santa-Clara, 2015). Moreover, sector ETFs may exhibit varying levels of liquidity and sensitivity to macroeconomic factors, affecting signal reliability.

References

1. Jegadeesh, N., & Titman, S. (1993). “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.” The Journal of Finance.

2. Barroso, P., & Santa-Clara, P. (2015). “Momentum Has Its Moments.” Journal of Financial Economics.

3. Moskowitz, T. J., & Grinblatt, M. (1999). “Do Industries Explain Momentum?” The Journal of Finance.

This indicator provides a practical tool for evaluating sector-specific momentum dynamics, grounded in robust financial theory. Its modular design allows customization, making it a versatile instrument for momentum-based sector analysis.

發行說明

Added correlation, beta and YoY% Performance.