Sector Rotation Strategies in the TSX 60: A Comprehensive Analysis of Risk-Adjusted Returns, Machine Learning Applications, and Out-of-Sample Validation (2000–2025)

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Authors: Gourav Salotra, Eugene Pinsky
Cited by: 1
References: 49

Abstract

We investigate the profitability of systematic sector rotation strategies in the Canadian equity market using TSX 60 constituents (2000–2025). Testing 72 distinct strategies across three theoretical frameworks—momentum, mean-reversion, and balanced approaches—with varying rebalancing frequencies, we identify that median-performer selection combined with quarterly rebalancing generates statistically significant risk-adjusted returns (Sharpe ratio 0.922 versus 0.624 for equal-weighted buy-and-hold). Our primary contributions include rigorous out-of-sample validation, demonstrating performance persistence from 2020 to 2025, machine learning regime classification with 72.7% accuracy, and a comprehensive transaction cost analysis. Results support intermediate-horizon mean reversion in sector returns and challenge strict efficient market hypothesis interpretations in concentrated markets. Findings inform tactical asset allocation practices and contribute to the momentum-reversal literature by documenting conditions under which rotation strategies generate economically meaningful alpha.

Fields of Study & Subjects

Financial Markets and Investment Strategies Auditing Earnings Management Governance Stock Market Forecasting Methods

Publication details

Journal / source
Journal of risk and financial management
Publisher
MDPI AG
Volume
19
Issue
1
Pages
70–70
Publication date
15 January 2026
Language
EN