The CFA presents market timing as an alternative strategy to simple security selection. Market timers be on the direction of the market, or a sector of the market as a whole. For these strategies, the IC is based on the proportion of correct call. The IC equation is shown below:
IC = 2(% correct) -1
For sector rotation, the active risk of the strategy is the standard deviation of differential returns of the two sectors:
To annualize the risk, we must take into account the number of bets made in the year as the BR value.
