Strategy Thesis
Dual-momentum is a rules-based trend-following strategy that ranks its 24-name universe — spanning mega-cap tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), and consumer staples (PG, KO, WMT) — by 60-day total return, enters the strongest trending names, and exits on trend break. The logic is deliberately simple: ride winners, cut losers, let momentum do the work.
Backtest Snapshot
Over the 451-day backtest period, the strategy grew a $10,000 hypothetical portfolio to $12,349.63, a total return of 23.5% (12.52% annualised). Risk-adjusted, the Sharpe ratio came in at 0.95 — respectable for a momentum model in a mixed-regime environment. Maximum drawdown reached 15.67%, which is meaningful but not catastrophic for a fully-invested equity strategy.
One number that deserves attention: turnover of 2,638%. The strategy churned through 136 trades in 451 days, generating $136 in total fees. At those volumes, even small friction costs (wider spreads, market impact, tax drag in non-sheltered accounts) could erode live returns materially. The 28.79% win rate is characteristically low for momentum — the model is designed to have many small losses absorbed by a handful of large winners, which is structurally correct but psychologically demanding to hold through.
Walk-Forward Validation: 3 of 4 Folds Positive, Gate Still Closed
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 | 3.92% |
| 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 stands out as a near-perfect environment for trend-following — high return, exceptional Sharpe, minimal drawdown — while Fold 2 shows how badly a momentum strategy can behave in a choppy, reversing market. The 17.15% drawdown in that six-month window is a useful stress marker: this strategy does not hedge, rotate to cash on its own, or hold defensive positions.
Despite 3 of 4 folds being profitable, the strategy did not pass the validation gate. The Deflated Sharpe Ratio (DSR) of 0.476 — which adjusts for the number of strategy trials tested (6) and the non-normality of returns — falls below the 0.5 threshold. The PSR of 0.893 is more encouraging but not sufficient on its own. The validation framework is intentionally conservative here to guard against overfitting to a specific backtest window.
Recent Activity: Fully in Cash
The last six scheduled runs (June 26 – July 3) all report zero executions and a flat $10,000 account. No names in the universe are currently clearing the 60-day momentum threshold, so the strategy is holding cash and waiting for a cleaner trend signal. This is correct behaviour — sitting out rather than forcing entries in a directionless tape — but worth monitoring to ensure the signal logic is functioning as intended and not stuck in a degenerate state.
Takeaways
Strengths: Solid total return, improving fold performance in the most recent period (Fold 4 OOS Sharpe of 2.15), and disciplined cash-holding when no trend signal is present.
Risks: Failed DSR gate indicates possible overfitting risk; extreme turnover threatens live-performance decay; Fold 2 demonstrates significant tail risk in mean-reverting regimes. Validation gate should remain closed until a longer live-track record can be assessed.