What is the Dual Momentum Trading Strategy?
Dual momentum trading strategy helps you to compare the two assets and pickup of the one who has high momentum.
ex: equity vs debt or equity vs debt or etfs in different sectors.
absolute momentum: compares itself, ex: price of stock its previous period.
Relative momentum: compares two types or assets ex: equity vs gold, or equity vs debt.
Dual Momentum Investing Strategy Formula
Momentum Score = (Absolute Momentum * Weight) + (Relative Momentum * (1 – Weight))
Here,
Absolute Momentum – Current Asset Price / N-period Past Price
Weight – A digit between 0 and 1, which helps determine the return rate for traders to invest considering absolute vs relative momentum.
Relative Momentum – Asset Return / Category Return
Buy when both momentums are positive. or sell when on negative.
Modular Dual Momentum Approach
1.REITS (Mortgage REITS – Credit REITS)
2. Equities (US stocks – International stocks)
3. Economic stress (Gold – Treasury bonds)
4. Bonds (Credit bonds – High-yield bonds)
compare the 2 sectors or similar sector withing 12 months range. then positive momentum then invest.
Dual Momentum Sector Rotation etfs
investors has to choose different ets in sectors, assets, regions. and compare the 12 months performance. and but 3 etfs. and reanalyze monthly.
Cons:
higher transaction expenses. Capital gain taxes
