Trend following · Beginner · Monthly rebalance — very low maintenance
Dual Momentum
How it works, and when it doesn't.
Absolute momentum is the crash filter. Relative momentum alone keeps you in the worst asset in a bear market — absolute momentum gets you out.
EFA 12-month return=1.4% — marginal. LR=50%. Waiting for clearer trend.
Why it works
Dual Momentum combines relative momentum (which asset is strongest) with absolute momentum (is the asset trending up at all). This two-filter approach avoids the momentum crash problem by moving to cash when markets fall broadly.
The signal logic
- Compare 12-month return of SPY vs international stocks (EFA)
- Hold the stronger asset — but only if its absolute return is positive
- Otherwise hold T-Bills (BIL) as the safe haven
When it fails
Whipsaw in flat markets where the 12-month return flips above and below zero repeatedly. The monthly rebalance is too slow in fast crashes.
- Best market
- Clear trending markets with sustained up or down moves
- Worst market
- 2015-2016 range-bound chop, rapid V-shaped recoveries
Backtest
| Sharpe ratio | 0.63 |
| Annual return | 7.6% |
| Worst drawdown | -24.4% |
| Trades in the backtest | 22 |
Backtest on daily bars, positions taken the bar after the signal (no look-ahead).
Dual Momentum, live.
Re-scored after every close.
The platform runs this and 32 other strategies against the live tape each day — with the evidence behind every number.