The Thesis
Dual-momentum is one of the more time-tested ideas in systematic equity investing: rank a defined universe by 60-day price return, hold the strongest trending names, and exit when the trend breaks. The strategy runs against a focused 24-stock universe of large-cap US names spanning technology, financials, healthcare, consumer staples, and energy—household tickers like NVDA, AAPL, JPM, and XOM. The logic is straightforward: price momentum is a documented factor, and concentrating in leaders while cutting losers early keeps the portfolio on the right side of the tape.
Backtest Snapshot
Over 451 days of paper trading, dual-momentum compounded a 23.5% total return (12.52% annualised CAGR) on a $10,000 starting balance, closing at $12,349.63. The overall Sharpe ratio came in at 0.95—reasonable for a single-factor strategy—with a maximum drawdown of 15.67%.
The win rate of 28.79% across 136 trades will look low at first glance, but that is characteristic of momentum strategies: many small stops, fewer large winners. The trade-off is high turnover—2,638% annualised—which means friction costs matter considerably in live deployment. At $1 per trade in fees, the 136-trade run cost $136 in simulated commissions; that figure scales quickly if the lot sizes grow.
Cross-Validation: A Mixed Picture
The platform ran a 4-fold walk-forward validation across 6 parameter trials. Three of four folds were profitable:
| 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 2 is the cautionary tale: a nearly 7-point loss and a 17% drawdown suggest the 60-day lookback struggled through choppy, mean-reverting conditions. Fold 3's 3.32 Sharpe is exceptional and drives much of the aggregate headline number, so it deserves some scepticism about representativeness.
The out-of-sample (OOS) fold—Fold 4—returned +13.34% with a 2.15 Sharpe and only a 7.43% drawdown. That is genuinely encouraging. Yet the validation gate failed. The culprit is the Deflated Sharpe Ratio (DSR) of 0.476, which penalises the backtest Sharpe for the number of parameter trials run (6). With a PSR of 0.893, the probability that the Sharpe is above zero is high—but the DSR corrects for selection bias across multiple configurations, and at 0.476 it falls well short of the typical ≥ 0.95 pass threshold. In plain terms: the strong Fold 3 performance may partly reflect the strategy being tuned—even subtly—toward periods that suit it.
Recent Activity: Fully in Cash
From June 16 through June 23, dual-momentum ran its daily scheduled scan and executed zero trades on each occasion, leaving all $10,000 in cash. No positions are currently open. This is not a bug—it is the strategy doing exactly what it should when no name in the universe is clearing the momentum threshold. Whether this reflects a genuine lull in trend strength or a lookback window that is temporarily under-sensitive is worth watching over the coming sessions.
Strengths and Risks
Strengths: The OOS Sharpe of 2.15 is the most trustworthy number here, and it is strong. The strategy's willingness to go to cash preserves capital in trendless markets, as the current pause illustrates. The universe is liquid enough that slippage risk is manageable at paper-trading scale.
Risks: High turnover makes real-money deployment expensive. Fold 2's drawdown shows the strategy can bleed steadily in choppy regimes. The failed DSR gate is a legitimate warning: with only 6 trials, the bar was not high, and not clearing it suggests the Sharpe estimate is noisier than the headline figure implies. Any live capital commitment should wait for additional out-of-sample evidence.