Regime-Aware Interpretable Ranking for Sector Rotation

arXiv:2610.26456 · q-fin.PM, cs.LG, q-fin.CP · Submitted 2026-10-19 · Read on arXiv

q-fin.PM, cs.LG, q-fin.CP

Submitted: 2026-10-19

Updated: 2026-10-19

Comments: ICAIF 2026 (Oral)

DOI: 10.1145/3858063.3858823

License: http://creativecommons.org/licenses/by-nc-nd/4.0/

The gist: Sector rotation is a common decision in benchmark-relative portfolio management, where portfolio managers rank sectors for overweight and underweight positions.

Abstract

Sector rotation is a common decision in benchmark-relative portfolio management, where portfolio managers rank sectors for overweight and underweight positions. We formulate this task as ranking sector actions by expected future risk-adjusted active performance, measured with forward sector-benchmark Sharpe ratios. Such rankings should preserve temporal information, express model outputs through economically familiar signal characteristics, account for changes in signal relevance across macroeconomic environments, and capture dependencies among sectors. We propose RegimeRank, an interpretable sector-ranking model that represents fundamental and technical signals through expert-defined temporal characteristics, conditions them on learned macro factors via cross-attention, and models cross-sector dependencies through self-attention. Expected-gradient attributions identify the contributions of individual signal-transformation pairs, while macroeconomic and cross-sector attention maps provide diagnostics of the learned conditioning and relational structure. We evaluate RegimeRank on weekly S&P 500 data from 2002 to 2024 under combinatorial purged cross-validation, where it outperforms representative ranking and machine-learning baselines across multiple ranking metrics. Ablation studies support the contributions of latent macro states, regime conditioning, and cross-sector modelling, while attribution and attention analyses illustrate the temporal characteristics, macro states, and sector relationships underlying its rankings.

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