Dual Momentum 10 Period System

Classical Dual Momentum (DM) uses a 12 months look-back period to determine the absolute and relative momentum of US equities and International Equities.

Although the 12 months look-back period has historically shown the best results for the strategy, there is no reason to believe it will continue to be so in the future.

Newfound Research (NR) explored that topic in the article “Fragility Case Study: Dual Momentum GEM”. NR proposed a simple approach of dividing the DM portfolio into 7 sub-portfolios each of which runs DM with a different look-back spanning from 6-12months.

Gary, the author of DM, responded to NR with his own post: “Whither Fragility? Dual Momentum GEM”. Gary stands behind the 12 months look-back.

I like Newfound’s 7 look-backs system because it offers diversification by simply incorporating new look-back periods. I liked it so much that I decided to start using a 10 look-backs system for my own trading. I called it “Dual Momentum 10 Period System”. I simply incorporated 3 extra look-backs to the NR system (I added 3, 4 and 5 months look-backs to the system)

(I am putting on hold for the moment my leveraged 1.35x DM strategy. I have yet to consider how leverage fits into a system like "Dual Momentum 10 Period System")

Calculating the signal for this system is more complex than classic DM because we have to calculate 10 individual DM signals (one per look-back, from 3 to 12 months) and then aggregate the results. The end result is a portfolio with variable allocations to US Equities, International Equities and Bonds.

Once a month, on your decided trading date, you have to adjust the portfolio to the allocations that result from aggregating the individual DM sub-portfolios.

To help with this task I created a Python script that automatically calculates the Total Returns for VOO, VEU and BIL for each of the 10 look-backs. The Total Returns of VOO, VEU and BIL are used to compute the signal of the Dual Momentum 10 Period System.

The table below updates daily at around 8:00PM Eastern Time. You can use it as a reference point not only to calculate the signal for the "Dual Momentum 10 Period System", but for Classical Dual Momentum and Newfound’s 7 Period System as well.

Your feedback, questions and comments are most welcome. Drop a note below and I’d be happy to reply.