Editing Sector rotation (section)

{{refimprove|date=March 2021}}'''Sector rotation''' is a theory of [[stock market]] trading patterns.<ref>[http://www.investopedia.com/terms/s/sectorrotation.asp Sector Rotation Definition] Investopedia</ref>
In this context, a [[List of recognized economic sectors|sector]] is understood to mean a group of stocks representing companies in similar lines of business.
The basic premise is that these stocks can be expected to perform similarly. Additionally, different groups of stocks which have been clustered according to the aforementioned principle will show differing performance.

Sector rotation theory says a number of things. First, whichever sector is hot (has done well recently) should continue to outperform. Second, these sectors will eventually rotate so that whatever was once out of favor will be in favor. Third, these movements are somewhat predictable, and connected with the [[business cycle]].

With the phase-shift in the performance cycle of sectors (ideally like the [[phase-shift]]ed wave patterns of [[three-phase electric power]]) an investor could continually hop from a sector at the peak of performance to a sector showing a potential to rise.

A sector rotation investment strategy is not a passive investment strategy like indexing, and requires periodic review and adjustment of sector holdings. [[Tactical asset allocation]] and sector rotation strategies require patience and discipline, but have the potential to outperform passive indexing investment strategies.