HOW IT WORKS
The Navier Flow Model — Explained
No black boxes. Here is exactly what the model measures, why each factor was chosen, and how scores become portfolios.
THE PHYSICS CONNECTION
Why Fluid Dynamics?
The Navier-Stokes equations — named for Claude-Louis Navier and George Gabriel Stokes — describe how fluids move through space over time. They have been used to model everything from ocean currents to airflow over jet wings. The key insight they offer is a way to characterize the state of a flow: is it organized and directional (laminar), or chaotic and unpredictable (turbulent)?
Stock markets exhibit the same dichotomy. During trending regimes, price momentum is directional and systematic — a high-scoring stock is likely to keep moving in the same direction. During volatile, turbulent regimes, momentum signals break down and the market becomes noise-dominated. The fluid dynamics framework gives us a rigorous language and a measurable threshold for distinguishing between the two states.
"The Reynolds number in fluid dynamics predicts when laminar flow tips into turbulence. Our market Reynolds number does the same thing — it's a quantitative regime signal, not an opinion."
SCORING FACTORS
What Every Stock Is Scored On
Each of the 5,000+ stocks in the model's coverage universe is scored daily on four primary factors. The scores are combined into a single composite rank that feeds portfolio construction.
How fast price is moving relative to its historical range. Measured across multiple lookback windows (21-day, 63-day, 126-day) and normalized to create a consistent cross-sectional rank. The primary driver of score in momentum regimes.
The rate of change of velocity — is momentum speeding up or slowing down? A stock with high velocity but negative acceleration (decelerating momentum) scores lower than one with slightly lower velocity but positive acceleration. Forward-looking within the systematic framework.
High-viscosity fluids resist flow. High-volatility stocks resist consistent momentum scoring. Volatility is applied as a penalty factor: the same momentum signal in a high-volatility stock is worth less than in a low-volatility one. Protects the model from chasing noisy signals.
A separate layer applied based on risk profile. For conservative profiles (RA7–RA10), the model applies a minimum dividend yield, minimum payout stability, and maximum drawdown floor. For aggressive profiles (RA1–RA4), quality filters are minimal and momentum dominates.
REGIME DETECTION
The Reynolds Number — Market State in One Number
In fluid dynamics, the Reynolds number (Re) predicts whether a flow is laminar or turbulent. It's calculated from the fluid's velocity, density, and viscosity relative to its container. In our model, we compute an analogous market Reynolds number using cross-sectional momentum dispersion, VIX, and breadth metrics.
CURRENT MARKET RE — ILLUSTRATIVE
When Re is below 300, the model runs in its standard configuration — momentum scores drive construction, the rank boost multiplier is active, and the growth sleeve (if selected) operates at full allocation. When Re crosses 300, three things happen automatically: the rank boost multiplier reduces, turbulence penalties are applied to high-volatility names, and the growth sleeve de-risks to reduce tactical exposure. The model doesn't exit — it adapts.
PORTFOLIO CONSTRUCTION
From Scores to Portfolios — The RA Framework
Scores become portfolios through the risk profile layer. Each RA level has its own construction parameters that the model applies to the same underlying score rankings.
| PROFILE | POSITIONS | QUALITY FLOOR | VOLATILITY CEILING | SLEEVE ELIGIBLE |
|---|---|---|---|---|
| RA1 — Maximum Aggressive | 18–24 | None | None | Yes |
| RA2 — Aggressive Growth | 20–26 | Minimal | None | Yes |
| RA3 — Growth | 22–28 | Light | Soft cap | Yes |
| RA4 — Growth-Leaning | 24–30 | Moderate-light | Soft cap | Yes |
| RA5 — Balanced | 28–35 | Moderate | Moderate | Yes |
| RA6 — Conservative-Leaning | 32–40 | Moderate-high | Moderate | Yes |
| RA7 — Conservative Growth | 35–45 | High | Firm cap | Yes |
| RA8 — Conservative | 40–50 | Very high | Firm cap | No |
| RA9 — Very Conservative | 45–55 | Maximum | Strict | No |
| RA10 — Capital Preservation | 50–60 | Maximum | Strict | No |
Rebalancing signals are generated when a held position's score drops enough relative to the replacement candidate (accounting for transaction costs and tax impact) to justify the swap. The model does not rebalance on a calendar schedule — it rebalances on signal.
THE GROWTH SLEEVE
Optional 15% Tactical Allocation
For RA1–RA7 profiles, clients can elect a 15% Growth Sleeve on top of their core portfolio. This carves out 15% of the total allocation for 3–5 of the model's highest-conviction positions in the current regime — typically the top-ranked names by composite score with no quality floor restrictions.
The sleeve operates independently of the core: it can hold names that wouldn't qualify for the core portfolio (e.g., a high-momentum stock that fails the RA6 quality filter). It's a deliberate, bounded expression of higher conviction — not noise.
When Re crosses 300, the sleeve automatically reduces exposure. The 3–5 positions are trimmed, proceeds move to cash or equivalents within the sleeve allocation, and the sleeve stays dormant until Re returns below 300. You don't manage this — the model does.
The sleeve is best suited for investors who are comfortable with their RA profile for the bulk of their portfolio but want the model to take targeted, high-conviction positions with a bounded portion. It is not appropriate for RA8–RA10 — the capital preservation mandate and the tactical sleeve's risk profile are incompatible.