In May 2015, Micheal A. Gayed published a paper called Lumber: Worth Its Weight in Gold Offense and Defense in Active Portfolio Management (free download at SSRN). We used that paper to make a profitable lumber/gold ratio trading strategy for stocks and bonds.
Gayed explained it like this:
Lumber futures are often overlooked as a leading indicator of economic growth, but they may be just as important as industrial metals like copper.
We changed Gayed’s trading rules, and we did the following:
* Make a lumber/gold ratio;
* When the ratio is higher than the month before, we go long S&P 500 (SPY);
* When the ratio is lower than the month earlier, we go long bonds (TLT).
When we coded the trading rules in Amibroker, we got the equity curve shown below.
We published the Lumber-Gold Trading Rule made by Micheal Gayed and switched TLT to see how it performs. Check here >>
https://www.quantifiedstrategies.com/lumber-gold-ratio-trading-strategy-for-stocks-and-bonds/