Momentum Average and TAA

Damian in the comments asked if I could use the average of four returns: the 1 month, 3 month, 6 month, and 12 month to rank the components of the momentum strategy from the previous post.

The results were as I expected. The momentum strategy isn't that good more than six months out and averaging the good Sharpe strategy with the bad Sharpe strategy really doesn't improve the returns. Intermediate trends are strong enough for ETFs that that should be the focus. I was able to improve on his idea by changing it to an average of 1 month, 3 month, and 4 month returns and the 1 month and 4 month are an improvement still above the momentum average. They still don't outperform the j=4, k=2 model in backtests, but they could outperform other models and there's no reason why it can't outperform in the future. The two bottom strategies at least relieve some of the burden on the 4 month.


I should also note that I am continually refining these strategies including the calculation of interest, margin, and the risk parity weights. I'll always post a comparison to a base model whenever it is different from anything posted in the past. The difference in returns from this model to the original reflects better accounting of interest returns. I also took out the previous inclusion of the style ETFs. Sector momentum has previously been far more important than style momentum and I expect that to continue in the future.