Risk-Adjusted Momentum Factor - US

Overview

Risk-adjusted momentum is similar to price momentum, except this factor takes into account the level of risk involved. This is done primarily because of the popularity of the momentum factor during periods of high volatility, and by taking into account volatility, we mitigate the momentum factor from suffering from swift changes in market direction.

Data Highlights

  1. For low-risk and high reward investors, when adjusting for risk the top performing portfolio (Q_10) generates strong annual returns and cumulative return, while simultaneously showing a lower correlation to the market and the highest Sharpe ratio.
  2. When looking at all risk-adjusted momentum factors, all factors out-perform the maximum drawdown of the market, and again have a lower correlation to the market. This is while demonstrating strong cumulative return and annual returns.

Performance Showcase

The demonstration of risk-adjusted momentum performance shows the comparison of different risk-adjusted portfolios. Portfolios were rebalanced monthly using a market-cap weighted method, with 20 basis points deducted as costs per transaction.

 
Annual Return
Cumulative Return
Volatility
Sharpe ratio
Calmar ratio
Max Drawdown
Omega ratio
Sortino ratio
Skew
Kurtosis
Tail ratio
Monthly value at risk
Alpha
Beta
SPY
7.64%
245.25
13.43%
0.62
0.15
-52.56%
1.61
0.90
-0.78
2.18
1.01
-0.06
0.00%
1.00
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10
8.21% 7.84% 6.58% 8.84% 9.23% 10.54% 9.55% 10.50% 11.84% 13.01%
277.64 256.40 192.14 316.34 341.94 440.00 364.02 437.35 557.34 684.17
27.20% 21.56% 20.08% 18.34% 16.36% 15.76% 14.56% 13.20% 11.59% 10.76%
0.42 0.46 0.42 0.55 0.62 0.72 0.70 0.83 1.03 1.20
0.12 0.12 0.11 0.16 0.17 0.20 0.20 0.23 0.29 0.32
-69.42% -63.15% -61.64% -56.61% -53.03% -53.42% -47.06% -45.02% -40.37% -41.20%
1.45 1.48 1.42 1.59 1.65 1.77 1.74 1.89 2.17 2.50
0.71 0.75 0.64 0.87 0.95 1.11 1.07 1.28 1.59 1.90
1.04 0.64 0.16 0.11 -0.29 -0.44 -0.54 -0.59 -0.90 -0.95
7.42 5.23 4.69 4.91 3.14 4.08 2.85 2.79 3.17 2.98
1.10 1.02 0.90 0.93 1.00 1.14 1.03 1.11 1.04 1.16
-0.12 -0.09 -0.09 -0.08 -0.07 -0.07 -0.06 -0.05 -0.04 -0.04
0.89% 0.76% -0.26% 2.27% 3.02% 4.32% 3.77% 5.11% 6.92% 8.50%
1.67 1.43 1.37 1.25 1.14 1.10 1.02 0.92 0.79 0.69