The Thesis
Dual-momentum is one of the cleaner ideas in systematic equity trading: rank your universe by 60-day return, hold the strongest names, and exit when the trend breaks. No earnings calls, no macro forecasts — just price doing the talking. The strategy runs across 24 large-cap names spanning tech, financials, healthcare, consumer staples, and energy, giving it sector diversity without diluting the momentum signal.
Backtest Snapshot
Over 451 days of simulated trading, dual-momentum produced a 23.5% total return (12.52% annualised CAGR) on a $10,000 paper portfolio, closing at $12,349.63. The Sharpe ratio of 0.95 is respectable for a trend strategy, but the 15.67% maximum drawdown is the number that deserves attention — that's a meaningful equity dip for a strategy that's supposed to cut losers quickly.
Turnover is high at 2,638% annualised, driven by 136 trades across the period. At $1 per trade in fees, total friction was modest ($136), but in a real account with spread and market impact, the picture could look different. The 28.79% win rate is characteristic of trend-following: most trades are small losses, with the occasional outsized winner pulling the average up.
Walk-Forward Validation: A Mixed Picture
This is where the story gets complicated. The four-fold walk-forward validation returned 3 of 4 positive folds — but the dispersion between folds is wide enough to raise flags.
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +5.85% | 1.23 | 3.92% |
| 2 | Jan 2025 – Jul 2025 | −7.31% | −1.05 | 17.15% |
| 3 | Jul 2025 – Dec 2025 | +25.59% | 3.32 | 4.04% |
| 4 | Dec 2025 – May 2026 | +13.34% | 2.15 | 7.43% |
Fold 3 is exceptional — a 25.59% return with a 3.32 Sharpe and only a 4% drawdown. Fold 2 is the problem child: a 17.15% drawdown and a negative Sharpe, with 60 trades in five months suggesting the strategy was churning in a choppy, trendless tape.
The out-of-sample return of 13.34% (Fold 4, the most recent period) is the figure that matters most for forward-looking confidence. The OOS Sharpe of 2.15 is encouraging, but the Deflated Sharpe Ratio of 0.476 — which adjusts for the number of trials tested — is the validator's way of saying the headline Sharpe may be partially illusory. With 6 trials and a PSR of 0.893, there's a reasonable (but not certain) probability the strategy has a positive edge. The validation status is currently flagged as not passed.
Recent Activity: Sitting on Its Hands
For the past week (June 9–16), dual-momentum has executed zero trades across six daily runs, holding the full $10,000 in cash. This isn't necessarily a bug — it's the strategy doing exactly what it's designed to do when no name in the universe clears its trend threshold. In a market where momentum signals are ambiguous or compressed, sitting flat is a legitimate position.
That said, extended periods of inactivity do raise a practical question: is the signal threshold calibrated to be selective, or is it missing genuinely trending names in the universe?
Strengths and Risks
Strengths: Clean thesis with a long academic pedigree. Decent OOS performance in the most recent fold. The strategy is rules-based and auditable — no black-box discretion.
Risks: High fold-to-fold dispersion suggests sensitivity to market regime. The Fold 2 drawdown (17.15%) indicates the strategy can be caught flat-footed in reversals. High turnover is manageable in paper trading but warrants scrutiny at real scale. Validation has not yet passed the platform's DSR threshold.
Verdict: Dual-momentum is a credible starting point, not a finished product. It earns a watchlist spot — not a green light.