Quantitative Models and Construction Methods 1. Model Name: Diffusion Index Model - **Model Construction Idea**: The model is based on the principle of price momentum, aiming to capture upward trends in industry performance[26][39] - **Model Construction Process**: The diffusion index is calculated for each industry, reflecting the proportion of stocks within the industry that exhibit positive momentum. The index ranges from 0 to 1, where higher values indicate stronger momentum. The model selects industries with the highest diffusion indices for allocation. For example, as of August 1, 2025, the top-ranked industries included Steel (1.0), Comprehensive Finance (1.0), and Non-Banking Finance (0.999)[27][28] - **Model Evaluation**: The model has shown mixed performance over the years. While it achieved significant excess returns in 2021 (up to 25% before September), it experienced notable drawdowns in 2023 (-4.58%) and 2024 (-5.82%) due to its inability to adjust to market reversals[26] 2. Model Name: GRU Factor Model - **Model Construction Idea**: This model leverages GRU (Gated Recurrent Unit) deep learning networks to process high-frequency volume and price data, aiming to identify industry rotation opportunities[40] - **Model Construction Process**: The GRU network is trained on historical minute-level data to predict industry factor rankings. The model then allocates to industries with the highest predicted rankings. As of August 1, 2025, the top-ranked industries included Non-Banking Finance (-1.15), Steel (0.7), and Base Metals (0.5)[34][38] - **Model Evaluation**: The model has demonstrated strong adaptability in short-term scenarios but struggles in long-term or extreme market conditions. Its performance in 2025 has been hindered by concentrated market themes, resulting in difficulty capturing inter-industry excess returns[33][40] --- Backtesting Results of Models 1. Diffusion Index Model - **Weekly Average Return**: -1.67%[30] - **Excess Return (August)**: -0.44%[30] - **Excess Return (2025 YTD)**: -0.40%[25][30] 2. GRU Factor Model - **Weekly Average Return**: 0.00%[38] - **Excess Return (August)**: 0.16%[38] - **Excess Return (2025 YTD)**: -2.35%[33][38] --- Quantitative Factors and Construction Methods 1. Factor Name: Diffusion Index - **Factor Construction Idea**: Measures the breadth of positive momentum within an industry[27] - **Factor Construction Process**: The diffusion index is calculated as the proportion of stocks in an industry with positive momentum. For example, as of August 1, 2025, the diffusion index for Steel was 1.0, while for Coal it was 0.23[27][28] - **Factor Evaluation**: The factor effectively identifies industries with strong upward trends but may underperform during market reversals[26] 2. Factor Name: GRU Industry Factor - **Factor Construction Idea**: Utilizes GRU deep learning to rank industries based on high-frequency trading data[40] - **Factor Construction Process**: The GRU network processes minute-level volume and price data to generate factor rankings. For instance, as of August 1, 2025, the GRU factor for Non-Banking Finance was -1.15, while for Steel it was 0.7[34][38] - **Factor Evaluation**: The factor is effective in capturing short-term trends but struggles in long-term or highly volatile markets[33][40] --- Backtesting Results of Factors 1. Diffusion Index Factor - **Top Industries (August 1, 2025)**: Steel (1.0), Comprehensive Finance (1.0), Non-Banking Finance (0.999)[27][28] - **Weekly Average Return**: -1.67%[30] - **Excess Return (August)**: -0.44%[30] - **Excess Return (2025 YTD)**: -0.40%[25][30] 2. GRU Industry Factor - **Top Industries (August 1, 2025)**: Non-Banking Finance (-1.15), Steel (0.7), Base Metals (0.5)[34][38] - **Weekly Average Return**: 0.00%[38] - **Excess Return (August)**: 0.16%[38] - **Excess Return (2025 YTD)**: -2.35%[33][38]