Dual MomentumHome Page
Absolute Momentum Filter: S&P 500
- Dual Momentum is an investment strategy that aims to beat the market over full business cycles.
- It has a historical track record that backs this goal.
- Although past performance is no guarantee of future results, momentum has been recognized as the premier market anomaly.
- Consider reading Two Centuries of Momentum for a quick, yet compressive intro to momentum.
- The original Dual Momentum Strategy places the full portfolio in one of the following: US Stocks, International Stocks (aka ex-US stocks including developed and emerging markets) or a US Bond Aggregate.
- If the S&P500 total return in the last 12 months (253 days) is below the total return of short term treasury bills in the last 12 months, the full portfolio is allocated to a US Bond Aggregate fund (ex. SCHZ, BND, AGG).
- If the S&P500 total return in the last 12 months is above the total return of short term treasury bills in the last 12 months, then the full portfolio is allocated to either a US Stock fund (ex. VOO, VTI) or International Stocks (ex. VEU, VT, ACWI).
- The decision to allocate to either US equities or ex-US equities is determined by measuring which basket of stocks has the highest total return in the last 12 months.
- The strategy is evaluated once a month; at which point trades are placed if necessary.
- Traditional Dual Momentum has been described as fragile by Newfound Research in the article: Fragility Case Study: Dual Momentum GEM.
- You can read the counterargument by Gary Antonacci (creator of Dual Momentum) in the following article: Whither Fragility? Dual Momentum GEM.
- Newfound argues that having additional look-backs reduces specification risk and results in a more robust strategy.
- Gary points out that there is high correlation between the equally spaced look-backs.
- A simple (yet practical) way to reduce the correlation is to use a non-linear distribution of look-backs. See A Guide to Creating A Successful Algorithmic Trading Strategy.
- Momentum in stocks manifests from 3 to 12 months; being the strongest between 6 and 12 months.
- Below are some examples of the strategy with different look-backs.
- 1 look-back (12 months - Traditional Dual Momentum): https://yanniel.pythonanywhere.com/dual_momentum?lookbacks=253
- 2 look-backs (6 and 12 months): https://yanniel.pythonanywhere.com/dual_momentum?lookbacks=127,253
- 3 look-backs (3, 6 and 12 months): https://yanniel.pythonanywhere.com/dual_momentum?lookbacks=63,127,253
- 7 look-backs (6, 7, 8, 9 ,10, 11, 12 months): https://yanniel.pythonanywhere.com/dual_momentum?lookbacks=127,148,169,190,211,232,253
- You can use this website to get the allocation breakdowns. The website updates daily at around 8:00PM Eastern Time.
Risk Free Proxy: BIL
Lookback time unit: days
Number of lookbacks: 10
Lookbacks considered: 63,84,105,127,148,169,190,211,232,253
Current signal (allocation %) - Standard & Poor's 500: 80.00%
- MSCI All Country World ex-US: 0.00%
- Barclays Capital US Aggregate Bond: 20.00%
(ETF Proxies used for DM signal generation: VOO, VEU, BIL)
|Look-back period (days)||VOO Total Return||VEU Total Return||BIL Total Return|
- Take everything said here with a grain of salt.
- I am neither a financial advisor nor an expert on anything financial.
- There could be bugs in my Python code.
- This information is offered for educational purposes ONLY and should NOT be used as base for investing.
- Investing in financial markets is risky and you can lose money.