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OECD-CLI based macro investment strategy

Single-indicator OECD-CLI macro investment strategy

The OECD system of Composite Leading Indicators (OECD-CLIs) is designed to provide early signals of turning points in business cycles - fluctuation in the output gap, i.e. fluctuation of the economic activity around its long term potential level. This approach, focusing on turning points (peaks and troughs), results in CLIs that provide qualitative rather than quantitative information on short-term economic movements. The phases and patterns in CLIs are likely to be followed by the business cycle. source

Idea: Use turning points of OECD-CLI indicator for the derivation of (digital) investment signals



In the following, select the OECD indicator from which you want to derive the trading signals. Furthermore, you also have to choose which ticker you want to trade on the basis of the chosen indicator ('Apply to ticker').
The OECD indicators are lagged by about fourty business days. Those lags have been taken into account for the performance calculation.

Typical indicator - ticker combinations are:
StrategySharpe LongSharpe Long/ShortSharpe Short
Euro 19 + DAX
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Euro 19 + MDAX
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Euro 19 + SDAX
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OECD + DAX
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OECD + MDAX
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OECD + SDAX
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OECD + SPI
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OECD + MSCI World
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OECD + NASDAQ
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The investment signals, applied to equity indices, are fundamentally promising due to the following aspects:
- The approach makes, from the author's perspective, economic sense
- Empirical data show that the approach has achieved good results in the past
- It does not seem implausible that the approach can also work in principle in the future
Please notice that this is no investment advice.

Crypto tickers - motivated by the fact that recently rather high correlations between equity indices and Crypto asset prices are observed:
StrategySharpe LongSharpe Long/ShortSharpe Short
OECD + BTC/USD
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OECD + BTC/CHF
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OECD + ETH/USD
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OECD + ETH/CHF
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OECD + DOT/USD
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OECD + KSM/USD
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OECD + SOL/USD
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Click on the links above, or directly choose the combination of OECD-CLI and ticker your are interested in to backtest:
Select OECD indicator:
Apply to ticker:
Reinvest


Please notice: OECD indicators are subject to revisions. See here for further information.

Overview of current OECD allocation:
IndicatorLong / ShortAvg. duration long [months]Avg. duration short [months]
GermanyShort since 15 months13.411.8
SwitzerlandShort since 14 months10.78.5
EURO AreaShort since 14 months17.614.5
USAShort since 17 months10.99.9
OECDShort since 15 months15.313
Newest OECD-CLI date (lagged by ~40 days): 2022-10-31

Improvement

While here you see the performance of a binary investment decision - it can make sense to choose a portfolio factor allocation depending on the current state in the economic cycle. Typically, one finds that e.g. small cap performs best in the first part of the economic recovery.
Stay tuned for updates.