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Maybe look at inverse ETFs or sectors that typically do OK in a bear market (eg consumer staples). I just googled and found a pretty good Kiplinger article (though it has a lot of adds - sorry bout that) https://www.kiplinger.com/slideshow/investing/T022-S001-5-crash-proof-etfs/index.html . There's also some ETFs specifically tailored to being market neutral. Search for "market hedge etf" and you should find some.

That said, if ETFs aren't the way to go, during a market downturn there are still some rising stocks and (short) times that the market as a whole is rising. Maybe pick a historical window which you think might mimic an upcoming bear market. A real doomsday outlook?... pick 2008. Less pessimistic? maybe pick 2015. Run your algo against that specific time. Note that one can analyze a backtest using Pyfolio and it highlights how well the algo did during different "stress events". Taylor an algorithm to do well at those times.

Consider creating buy rules which look for stocks that are 'on sale' or are below the market returns for no apparent reason. In a bear market there are generally a lot of these. These should be the first to recover when the market turns around. Look for stocks with a low or negative beta (not a lot of negative betas though) is another strategy.

Hi Dan,

There's no ETF in our country as of per now. It's very limited.

Thanks for the information.

Do you have any guidance on how to do this in pyfolio ?

Cheers

@Welly,

I'm guessing you're referring to PSE, if so, I understand the limitations. As @Dan alluded to above, look for stocks with strong fundamentals, i.e strong sustained earnings growth, stable balance sheets, market share leaders, etc. whose stock prices have been battered of late due to the recent market downturn as a result of a perceived overheating of the economy as reflected by rising inflation. These stocks are currently undervalued and would be good candidates for buy and hold till the market turnarounds. Another set to look at are stocks that continue to outperform the PSE index,these are the so called "darlings", buy, follow short term momentum and then take profits.

"bear market" can just mean the economy is in a different economic cycle where other sectors do better - for example defensive stocks like utilities and healthcare instead of high tech companies. These can be captured by ETFs as well as individual stocks - perhaps look for correlations in the past price data, ie. previous times for sectors that rose during a downturn.

There are other ways of shorting too - can you trade options for example? A put option is effectively a bet that a stock will go down in price.

Hey,

You could leverage / deleverage your portfolio depending on the market cycle as well. Have a look at portfolio insurance techniques such as CPPI. The main drawbacks with these methods is that they are underperforming during indecisive markets and can lead to lage drawdowns. Another idea would be to tactically allocate your pourtfolio within different asset classes.