Adaptive Factor Trading via Market Regime Clustering Evidence from the CSI 300 Index

AbstractTraditional multi-factor strategies often employ a fixed trading signal threshold irrespective of market conditions. This paper proposes an adaptive thresholding framework that first clusters daily market environments using K-means on 13 technical indicators, then optimises a composite factor signal's entry/exit threshold separately for each regime. Applying a strict walk-forward test on CSI 300 data from 2010–2025, we find that the regime-adaptive strategy delivers an annualised return of 10.68% and a Sharpe ratio of 0.81, substantially outperforming a globally optimised threshold (8.68%, 0.72), a conventional fixed threshold (7.12%, 0.53), and the buy-and-hold benchmark (1.63%, 0.18). The gains stem from improved risk control rather than from market timing. The method offers a simple yet effective enhancement for systematic multi-factor investing. KeywordsAdaptive threshold, CSI 300 index, Factor investing, K-means clustering, Market regimes, Technical indicators, Walk-forward validation.

Authors

Publication Details

Journal
Zenodo (CERN European Organization for Nuclear Research)
Published
2026-07-17
DOI
https://doi.org/10.5281/zenodo.21405832
Primary Topic
Financial Markets and Investment Strategies
Type
preprint
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preprint

Adaptive Factor Trading via Market Regime Clustering Evidence from the CSI 300 Index

SHUOHAN ZHAO
Zenodo (CERN European Organization for Nuclear Research)
Financial Markets and Investment Strategies
preprint

Adaptive Factor Trading via Market Regime Clustering Evidence from the CSI 300 Index

SHUOHAN ZHAO
preprint en

Abstract

AbstractTraditional multi-factor strategies often employ a fixed trading signal threshold irrespective of market conditions. This paper proposes an adaptive thresholding framework that first clusters daily market environments using K-means on 13 technical indicators, then optimises a composite factor signal's entry/exit threshold separately for each regime. Applying a strict walk-forward test on CSI 300 data from 2010–2025, we find that the regime-adaptive strategy delivers an annualised return of 10.68% and a Sharpe ratio of 0.81, substantially outperforming a globally optimised threshold (8.68%, 0.72), a conventional fixed threshold (7.12%, 0.53), and the buy-and-hold benchmark (1.63%, 0.18). The gains stem from improved risk control rather than from market timing. The method offers a simple yet effective enhancement for systematic multi-factor investing. KeywordsAdaptive threshold, CSI 300 index, Factor investing, K-means clustering, Market regimes, Technical indicators, Walk-forward validation.

Zenodo (CERN European Organization for Nuclear Research)
Financial Markets and Investment Strategies
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Adaptive Factor Trading via Market Regime Clustering Evidence from the CSI 300 Index — SHUOHAN ZHAO · Zenodo (CERN European Organization for Nuclear Research) (2026) | TGRS Research Map | TGRS