Factor Rotation Tester
Test switching between Momentum, Quality, Value, Low Volatility and other styles on NSE data since 2016, against simply holding Nifty 50.
About the Factor Rotation Tester
This tester checks a simple idea on real NSE data: every month or quarter, hold the investing style (factor) that has done best recently, such as Momentum, Quality, Value or Low Volatility, and switch when the leader changes.
You choose how far back to look, how many styles to hold, how often to switch and whether to step aside when the market is weak. The result is compared with simply holding Nifty 50 and with an equal mix of all styles, after a cost for every switch.
The robustness grid tries every look-back and holding size at once. If only one setting works, the result is probably luck; if most settings beat Nifty 50, the idea is sturdier. Education on past data only.
Common questions
What is factor rotation?
Factor rotation means switching between investing styles, for example from Value to Momentum, based on which one has been strongest recently, instead of holding one style forever.
Can I invest in these factors?
The backtest uses NSE's factor index values. In practice people use ETFs or index funds that track these indices, which have costs, tracking error and tax that the backtest only partly covers. Most factor ETFs are too new for a long ETF-price backtest.
Why does the best setting change?
With about 10 years of data, a few well-timed switches can make one setting look best. The robustness grid shows how much the result depends on the exact setting.