Large Cap Vs Small Cap Rotation Trading Strategy (Setup, Rules, Backtest, Performance)
Stocks can be classified into many types: value vs. growth, profitability vs. investment, developed vs. developing countries, and, of course, large vs. small caps. Today, we present a large cap vs small cap rotation trading strategy.
The large-cap vs. small-cap rotation strategy aims to shift between these two groups to capitalize on the one that is performing the best, essentially, the one with the most momentum. But is this strategy profitable?
In this article, we are going to discuss what the large cap vs small cap rotation strategy is, develop a trading strategy, and backtest it.
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What is the large-cap vs small cap rotation strategy?
The terms “big-cap” and “small-cap” are generally self-explanatory, referring to companies’ market capitalization sizes. Big-cap stocks represent shares of larger, more established companies, while small-cap stocks are associated with smaller, typically faster-growing companies.
S&P 100 and S&P 500 are examples of large caps, while Russell 200o is often referred to as small cap.