How do I know a detected market regime is real and not just clustering noise? #28
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How do I know a detected market regime is real and not just clustering noise? Notes and answer below. |
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martex-dev
Aug 27, 2026
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Clustering will always return clusters because that is what it is asked to do. The test is predictive: fit the regime model on data up to time T, then check whether the regime label has out-of-sample explanatory power for a quantity you care about after T. If it does not, you have produced a description of the past rather than a usable signal. |
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Clustering will always return clusters because that is what it is asked to do. The test is predictive: fit the regime model on data up to time T, then check whether the regime label has out-of-sample explanatory power for a quantity you care about after T. If it does not, you have produced a description of the past rather than a usable signal.