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Finance GlossarySector Rotation
Sector Rotation
Definition of Sector Rotation
Sector rotation is an investment strategy where investors keep shifting their funds between sectors based on economic cycles or market trends. For example, defensive sectors tend to perform better during slowdowns. Cyclical sectors perform impressively during phases of growth. With strategic sector rotation, investors can manage risk while capitalizing on opportunities in different market conditions.
Related Terms
Slippage
Slippage refers to the difference between the expected price of a trade and the price at which it actually gets executed. Usually, it happens during periods of high volatility or low liquidity. Small slippage is normal, but the returns can get significantly impacted by large slippages. Active traders using market orders or scalping strategies must take guard against these risks.
Acid Test Ratio
An Acid Test Ratio shows whether a company has enough liquid short-term assets to deal with current liabilities.
The higher the Acid Test Ratio the better a company’s ability to deal with debt.
Acid Test Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current liabilities
The higher the Acid Test Ratio the better a company’s ability to deal with debt.
Acid Test Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current liabilities
New York Stock Exchange (NYSE)
The New York Stock Exchange (NYSE) is one of the world’s largest and oldest stock exchanges, located in New York City, USA. It provides a platform for buying and selling shares of publicly listed companies and is known for hosting many large, well-established global corporations.
Capture Ratio
The capture ratio is used to measure the performance of an asset during market highs and lows by comparing it to a benchmark.
The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:
The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:
- Up market capture ratio
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Down market capture ratio
Here’s how to calculate the up market capture ratio:
Returns during market highs / Benchmark returns * 100
Here’s how to calculate the down market capture ratio:
Returns during market lows / Benchmark returns * 100
Returns during market highs / Benchmark returns * 100
Here’s how to calculate the down market capture ratio:
Returns during market lows / Benchmark returns * 100
Odd Lot
An odd lot is a trade involving a number of shares that does not match the standard trading lot set by the exchange. For instance, if the regular lot size is 100 shares, a transaction of 30 or 50 shares would be classified as an odd lot.
Balance Sheet
A balance sheet is a financial statement that reveals a company’s assets, liabilities, and shareholders’ equity. It can help current and potential investors understand the financial health of a company.
These are some of the key components of a balance sheet:
These are some of the key components of a balance sheet:
- Current assets : Cash & cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and other liquid assets
- Fixed assets : Property, equipment, furniture, machinery, software, and other intangible assets
- Current liabilities : Short-term debt, unearned revenue, accounts payable, other accrued expenses & liabilities
- Long Term liabilities : Long-term loans, bonds, and others
- Shareholders’ equity : Paid-in capital and retained earnings
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