Rick

Understanding Single Absolute Momentum

Posted on by Rick

Let’s explore the world of Dual Momentum trading strategy. We’ll focus on “single absolute momentum” and its implications.

  1. Dual Momentum Overview:
    • Dual Momentum combines two types of momentum:
      • Absolute Momentum: Measures an asset’s performance.
      • Relative Momentum: Compares an asset’s performance to its peers or a benchmark.
    • The strategy aims to select assets that have outperformed their peers and are experiencing positive returns.
    • It dynamically rotates between different asset classes based on their momentum.
  2. Single Absolute Momentum:
    • Absolute momentum focuses on the standalone performance of an asset.
    • It answers the question: Is the asset currently moving upward?
    • Assets with positive absolute momentum are considered for inclusion in the portfolio.
  3. Drawbacks and Considerations:
    • High Turnover: Dual Momentum can lead to frequent trading due to rapid price changes. High turnover can increase transaction costs and tax implications1. Our strategies typically turnover monthly trying to find a balance between staying in a position too long while the market is moving lower and not having to adjust positions frequently.
    • Momentum Crash: While momentum works well in the short term, it may experience a sudden reversal (a “momentum crash”) during market downturns. Recovering from large losses requires substantial gains2.
    • Short-Term Bias: Momentum strategies focus on short-term performance, which may not align with long-term investment goals.
    • Data Sensitivity: Dual Momentum relies on historical data, and its effectiveness can vary based on the chosen look-back periods and rebalancing frequency.
  4. References:

Remember, while Dual Momentum can enhance returns, it’s essential to consider risk tolerance, time horizon, and individual preferences when implementing this strategy. Always consult with a financial advisor before making investment decisions345.

Learn more:
1 pm-research.com
2 optimalmomentum.com
3 quantifiedstrategies.com
4 optimalmomentum.com
5 therobusttrader.com

Rick

Managing Risk using Income Strategy

Posted on by Rick

This month, I’m going to look at the Tactical Asset Allocation bond income strategy. We will compare the performance of this strategy to the ETF IEF. The new combination has outperformed IEF consistently over the past 10 years and is not correlated at all to the S&P 500 index. This allows you to load up on these positions with the hope that a big market sell-off will not hurt this trade.

The graph below represents this new model (the blue plot) compared to IEF (the red plot).  What this graph shows is that the new model has more than double the average return of IEF with a much better Sharpe Ratio. As an example here are the April 2021 allocations.

17.56% SPDR Blmbg Barclays Convert Secs ETF (CWB)
82.44% SPDR Blmbg Barclays High Yield Bd ETF (JNK)

Sign up for Cromer Wealth Management’s Tactical Asset Allocation membership to get the current allocations. These trades are available to Bronze and Gold members.

Income products, IEF versus Alternative Investments
Performance of IEF alternative