Relief-Gated Relative Rotation for QQQ-DIA Allocation: Globally Screened Relative States, Fixed Position Mapping, Incremental Interaction Admission, and Walk-Forward Validation

Abstract

This paper studies Relief-Gated Relative Rotation (RGRR), a two-ETF rule that allocates between QQQ and DIA by mapping screened relative and macro states into a continuous QQQ weight. RGRR is economic rather than mechanical: it rotates between a growth-heavy sleeve and a Dow/value-heavy sleeve only when QQQ-DIA relative states are confirmed by rate, volatility, credit, or broad-market relief conditions. Candidate main effects and interactions are globally screened with horizon-specific HAC regressions and correlation de-duplication, then held fixed during walk-forward validation. Rolling out-of-sample validation re-selects only signal-family lambdas, not the signal universe or the position mapping. The final stack contains one main effect, nine second-order interactions, and two third-order interactions. Third-order terms must also improve rolling out-of-sample Sharpe versus the main plus second-order base and survive economic-family de-duplication. The final mapping uses a fixed bounded weight transformation and includes a 10 bps one-way turnover cost. Across the 2018, 2020, and 2022 out-of-sample starts, RGRR improves Sharpe versus 100% QQQ and 50/50 QQQ-DIA in every tested interval. It improves CAGR versus 50/50 in every interval, but beats 100% QQQ on CAGR only in the 2022 window. In 2018, RGRR earns an 18.33% CAGR and 0.94 Sharpe, versus 20.50% and 0.89 for QQQ and 16.69% and 0.86 for 50/50. In 2022, it earns a 15.19% CAGR and 0.87 Sharpe, versus 14.65% and 0.70 for QQQ. The evidence supports RGRR as a risk-adjusted relative allocation rule, not a pure return-dominance rule. Its main practical weakness is high turnover, ranging from 354% to 506% annualized.