Thesis
Dual-momentum is a relative-strength strategy applied to a 24-name blue-chip universe spanning technology, financials, healthcare, consumer staples, and energy. The rule is simple: rank holdings by their 60-day return, hold the leaders, and exit when the trend breaks. The logic is academically grounded — cross-sectional momentum is one of the most replicated factors in equity research — and the deliberate focus on large, liquid names limits the execution risk that plagues momentum strategies in smaller-cap spaces.
Recent Activity
The strategy has run on schedule every market day, but executed zero trades across the six sessions from June 5 through June 11, 2026. The full $10,000 paper portfolio sits in cash. This is the exit discipline working as designed: when no name in the universe clears the trend-strength threshold, the model stays flat rather than forcing a position. Patience is a feature, not a malfunction — though six consecutive idle days is a reasonable prompt to ask whether current market conditions are structurally misaligned with the strategy's entry criteria.
Backtest Performance
Over 451 days (~15 months), dual-momentum returned 23.5% (12.52% CAGR) with a 0.95 Sharpe and a 15.67% peak drawdown, finishing at $12,350 on a $10,000 starting balance. Those are solid headline numbers for a long-only equity strategy.
The trade mechanics tell a more nuanced story. At a 28.79% win rate across 136 trades, the strategy relies on a small number of large winners to overcome frequent smaller losses — a classic momentum profile that demands conviction during drawdown periods. Turnover deserves scrutiny: 2,638% annualized is substantial. In simulation, flat $1-per-trade fees kept friction negligible. In a live account, real-world commissions and slippage at this churn rate could materially compress net returns.
Validation & Cross-Fold Analysis
The strategy did not pass the automated validation gate. Four walk-forward folds paint a mixed picture:
| Fold | Period | Return | Sharpe | Max DD | Trades |
|---|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +5.85% | 1.23 | 3.92% | 20 |
| 2 | Jan 2025 – Jul 2025 | −7.31% | −1.05 | 17.15% | 60 |
| 3 | Jul 2025 – Dec 2025 | +25.59% | 3.32 | 4.04% | 16 |
| 4 | Dec 2025 – May 2026 | +13.34% | 2.15 | 7.43% | 42 |
Three of four folds are profitable. The out-of-sample (OOS) return of 13.34% with a Sharpe of 2.15 is genuinely encouraging, and the Probabilistic Sharpe Ratio (PSR) of 0.893 is respectable. However, the Deflated Sharpe Ratio (DSR) — which discounts performance for the number of parameter trials explored (6 here) — lands at 0.476, below the passing threshold.
Fold 2 is the main culprit: a −7.31% loss, a 17.15% drawdown, and 60 trades against 16–42 in the other folds. That period likely overlapped with a choppy, trend-killing tape — precisely the regime where momentum strategies historically underperform.
Strengths
- Academically grounded factor with decades of empirical support
- OOS Sharpe of 2.15 suggests the signal survives out of sample when conditions align
- Controlled, liquid universe limits tail and execution risk
Risks
- High turnover makes real-world friction a meaningful performance headwind
- A single adverse fold drove a >17% drawdown, revealing sensitivity to mean-reverting regimes
- A 28.79% win rate demands psychological and capital discipline during loss streaks
- DSR failure with only 6 trials limits statistical confidence in the reported Sharpe