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

High Octane Trading using Leveraged ETF’s

Posted on by Rick

Trading leveraged ETFs can be dangerous, especially when you over-trade or leverage your position size too big for your account. Most of the leveraged ETFs warn about holding these positions long-term and suggest that they should only be used for day trading. Despite those warnings, traders have held these ETFs longer terms.

As a general guideline, trading triple leveraged index ETFs will have a full position using only 1/3 of the portfolio. This assumes that the remaining 2/3rds of your account is in cash or as an alternative trade the Tactical Asset Allocation’s Income Strategy which uses a Dual Momentum algorithm to determine its monthly position. As of July 2021, the income strategy has averaged 8.35% per year for 11 years of history with 0.01 correlation, virtually no correlation, to the S&P 500.

This blog will explore how the Tactical Asset Allocation’s Leveraged Strategy performs compared to just holding UPRO the S&P 500 triple leverage ETF. The first point of comparison is how the buy and hold strategy compared to the Leveraged Strategy. The image shows the US Market Correlation of ProShares UltraPro S&P5000 ETF UPRO is 0.99 or in other words, very correlated with the US market. In contrast, the Tactical Asset Allocation’s Leveraged Strategy has a 0.43 Us Market Correlation, which is just slightly correlated. The Leveraged Strategy has an average 11-year return of 53.18%, as starting balance of $100,000 in 11 years grows to $8,802,856. Several other measures indicate this strategy has advantages like less volatility, outperformed on the best and worse years, only 59% of the max drawdown, and a Sharpe Ratio of 1.28 versus 0.90, which is a measure of the risk-adjusted return.

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

Leverage ETF Strategy
Leveraged ETF Strategy 11-year Results
Rick

Performance Returns Of The Model Portfolios

Posted on by Rick

Tactical Asset Allocation membership includes several different strategies, three of those are what I call the Model Portfolios. Back-tested results of these strategies go back more than 30 years. So how are they doing this year? The following shows April’s allocation and its month-to-date and year-to-date performance results.

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

Model: Rick’s Model #3

Very conservative investment, currently, 40% of this strategy is safely in cash.

Since we are about 1/3 into the year, assuming similar results for the other 2/3rds of the year, this model has a projected return of 8%

Model: Rick’s Model #4

Conservative Investment, end-of-month max drawdown during 2008/09 financial crises was only 10.7%.

Since we are about 1/3 into the year, assuming similar results for the other 2/3rds of the year, this model has a projected return of 17%.

Model: Rick’s Model #5

Conservative Investment, end-of-month max drawdown during 2008/09 financial crises was only 10.7%. Currently, 67% of this strategy is safely in cash.

Since we are about 1/3 into the year, assuming similar results for the other 2/3rds of the year, this model has a projected return of 18%.

Model 5 Equity Growth Performance

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