In Sideways Markets, Quant Doesn't Win — It Holds. An 81-Month Look

Break the Regime Strategy down across its 11-year backtest, and its performance has a completely different character in each of the three regimes (up, sideways, down). This post looks at the longest of them — the 81 sideways months.

The sideways scorecard

Over those 81 months:

• Regime Strategy, monthly average: +0.13%
• KOSPI, monthly average: +1.22%
• Cumulative: Regime Strategy +7.5% vs KOSPI +154%

At a glance: "lost badly to KOSPI." It did lose. But stopping here is seeing only half.

Sideways is not a "winning" regime

Here's the point — a sideways regime is not where the Regime Strategy makes money; it's where it holds. Having judged the direction uncertain, it stays near break-even (+0.13%/mo) on a neutral allocation and lets the chop pass. The real gains come from uptrends (averaging +6.7%/mo) and from defending in downtrends (staying positive while KOSPI collapses).

So what about KOSPI's +154% over those 81 months? Most of that was a slow, low-conviction grind, which the strategy did not treat as a trend worth betting on aggressively. It deliberately held its fire.

So, is there alpha to find here?

"Wouldn't going more aggressive in sideways markets raise returns?" — a natural question. But across these 81 months KOSPI's up-months and down-months are nearly even, with high variance. Raising exposure catches the up months and the down months alike. And KOSPI's sideways gains are concentrated in a few surge months — uncatchable without a signal to pick them in advance.

The real question isn't "go more aggressive," it's "is there a signal that distinguishes a sideways market about to resolve up from one about to resolve down?" That's an open question we're still testing — and we'll publish the result, effect or no effect, once the validation is done.

This post is for informational purposes and is not investment advice. All figures are backtest results on historical data.