We think it’s important to understand how our model quantifies risk with our continuous regime scoring or identifies points of exhaustion using our rotation signals. The following examples provide an idea for the robustness of our modelling and how to interpret content for individual client circumstances.
Our rotation signals can be overlaid very effectively on our regime scores to make sense of the more extreme scores. The rotation signals anticipate a break down in the prevailing trend. This does not mean that we will witness a complete and clear reversal but that we are less certain about the immediate price path for the instrument. The rotation signal and particularly a cluster of related signals would be a flag for action to preserve value. This can mean hedging, closing long/short positions or not over committing to compound an existing position and this action is specific to client circumstances.
However, we are confident that understanding what not to do in these periods preserves more value over the long term. Even if it is counterintuitive to wait and initiate a position at a less favourable price but with a clear view of the risk that is being onboarded to a portfolio.
