What the Strategy Does
Dual-momentum ranks a 24-stock large-cap universe — spanning tech, financials, healthcare, consumer, and energy — by 60-day price return and holds the strongest trending names. Positions are exited when the trend breaks. The logic is deliberately simple: ride winners, cut losers, repeat. No forecasting, no fundamentals, no macro overlay.
Backtest Snapshot
Over the 451-day backtest period the strategy compounded to +23.5% total return, equivalent to a 12.5% CAGR, with a Sharpe ratio of 0.95 and a maximum drawdown of 15.7%. Those headline numbers look respectable for a pure-momentum approach — the risk-adjusted return is roughly in line with a passive large-cap allocation, but the strategy achieves it with concentrated, rotating positions rather than broad market exposure.
One figure deserves scrutiny: a 2,638% turnover rate across 136 trades implies the portfolio was essentially rebuilt from scratch many times over. Combined with a 28.8% win rate, this is a strategy that profits not from being right often, but from letting winners run far enough to offset frequent small losses. Execution quality and transaction costs matter a lot in this regime — even at a flat $1/trade fee structure the math is tight.
Walk-Forward Validation
The four-fold walk-forward tells a more nuanced story:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +5.85% | 1.23 | 3.9% |
| 2 | Jan 2025 – Jul 2025 | −7.31% | −1.05 | 17.2% |
| 3 | Jul 2025 – Dec 2025 | +25.59% | 3.32 | 4.0% |
| 4 | Dec 2025 – May 2026 | +13.34% | 2.15 | 7.4% |
Three of four folds were positive, and the most recent out-of-sample window (Fold 4, +13.34%, Sharpe 2.15) is genuinely encouraging. However, Fold 2 was a rough stretch — a 17.2% drawdown and negative Sharpe — and the aggregate validation is marked failed. The Probabilistic Sharpe Ratio of 0.893 is reasonable, but the Deflated Sharpe Ratio of 0.476 is the number to watch: it adjusts for the fact that six parameter trials were run, and suggests roughly half the apparent edge may be an artefact of search rather than a persistent signal.
Live Activity: All-Cash Since June
The strategy has run daily since June 1 and executed zero trades across all six recent scheduled runs. Cash stands at $10,000 — the full starting capital. This is not a malfunction; it is the trend filter doing its job. When no name in the universe clears the 60-day momentum hurdle, the strategy simply waits. In choppy or rotation-heavy markets that patience is a feature, not a bug.
That said, an extended all-cash stretch should prompt a check: are the momentum thresholds calibrated for normal volatility regimes, or are they set so tight that live deployment will be structurally underinvested?
Strengths and Risks
Strengths: The strategy is transparent and rule-based, avoids curve-fitting through a strict trend-break exit, and the recent out-of-sample fold shows it can still deliver positive risk-adjusted returns in live-ish conditions.
Risks: The DSR flags potential overfitting across the trial set. High turnover amplifies slippage exposure in real markets. The single catastrophic fold (−7.31%, −17% DD) suggests the 60-day lookback may lag badly during sharp trend reversals.
Dual-momentum is a credible starting point — not a finished product. The next validation milestone should include a longer history and fewer parameter trials to sharpen the DSR before any real-capital deployment is considered.