Last Updated on June 19, 2022 by Quantified Trading
Over the last weeks I have written three articles about monthly momentum in TLT, SPY, and EEM:
- Monthly momentum in SPY, TLT, and EEM.
- Monthly momentum in SPY and TLT.
- Monthly momentum in SPY and EEM.
The first two strategies seem to perform reasonably well.
Many investors seek to minimize drawdown at the expense of total returns. In general, it’s very hard to get a high return without significant drawdowns, no matter what kind of timeframe you are using. The old proverb no pain, no gain is certainly true in the financial markets. It’s extremely rare you get BOTH high returns and little drawdown.
I tested several market-neutral momentum strategies among the above-mentioned ETFs. In general, these neutral strategies perform poorly. Let’s look at the most interesting one: SPY and EEM:
The strategy is to go long the ETF that had the best performance the prior month and short the weakest one. Pretty simple. Drawdown is reduced a lot but at the expense of returns. There are years with flat to no return, which obviously is hard to stomach. Perhaps there are other ways to play this, please use the comments section if you have any ideas.