This chart reveals which style of investing, growth or value is working currently. When the blue line is going up, growth stocks are working. When it is going down value stocks are working.
Re-balance your portfolio when the green line goes above 50 and then goes below it.
Or when the green line goes below -50 and then goes above -30. There is an orange line at -30 to show the transition. The +50 and -50 on the green line are extreme zones indicating a transition. No need to rebalance if the difference between the position weights from the desired weight is less than 1%. This will reduce unnecessary transactions.
From a quantitative point of view, growth (momentum) and value are negatively correlated. Clifford Asness et al. found value to have a -0.4 correlation with growth (momentum). A correlation of -0.4 means that when growth zigs, value has a tendency to zag. Owing to this lack of correlation, combining growth with value results in diversification benefits. This can reduce both volatility and turnover compared to a pure growth or value portfolio. It is more important to incorporate growth and value strategies rather than seek the exact optimal mix. While growth and value are negatively correlated, during a bear market both portfolios fall.
This chart reveals which style of investing, high or low volatility is working currently. When the blue line is going up, high volatility stocks are working. When it is going down low volatility stocks are working.
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