The Thesis
Dual-momentum is a straightforward trend-follower: hold the strongest-trending names by 60-day return, then exit when the trend breaks. Its universe is 24 large-cap US names spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), and staples (PG, KO, WMT). The logic is simple and time-tested — ride winners, cut losers — which is exactly why the details matter.
Headline Performance
The full backtest is respectable on the surface: +23.5% total return over 451 days, a 12.52% CAGR, and a final equity of $12,349.63 on a $10,000 base. The Sharpe of 0.95 is solid but not spectacular, and max drawdown of 15.67% is tolerable for an equity trend model.
Two numbers deserve a harder look. The win rate is just 28.79% across 136 trades — meaning fewer than one in three trades is profitable. That is normal for trend-following, where a handful of large winners carry a long tail of small losses, but it demands discipline and depends on those winners actually materializing. More concerning is turnover of 2,638%, indicating heavy churn. Fees are modest here ($136 total), but in a higher-friction or higher-slippage environment that turnover erodes the edge quickly.
Validation: The Red Flag
Walk-forward validation did not pass. Three of four folds were positive, and the numbers are encouraging in isolation — out-of-sample return of 13.34%, OOS Sharpe of 2.15, PSR of 0.893. But Fold 2 (Jan–Jul 2025) lost 7.31% with a 17.15% drawdown and a Sharpe of –1.05, showing the strategy can bleed badly when trends whipsaw. Crucially, the deflated Sharpe ratio (DSR) is only 0.476 across 6 trials. After adjusting for the number of configurations tested, the evidence for a genuine, non-lucky edge is weak. This is precisely the overfitting risk our validation gate exists to catch — and it caught it.
Recent Activity: Sitting on Its Hands
The live behavior is the quietest part of the story. The last six scheduled runs (Aug 6–13) each report 0 executed, 0 rejected, with the book flat at $10,000 cash and $0 invested. Whatever momentum filter it applies is currently finding no qualifying names — so the strategy is fully in cash and generating no signal at all. That may be prudent risk-off behavior, or it may reflect an overly strict entry condition. Either way, a live strategy that trades nothing is neither confirming nor refuting its thesis.
Verdict
Dual-momentum has an attractive backtest and a clean, defensible thesis, but it is not de-risked. The failed validation and low DSR argue against sizing it up, and the current week-long cash position means we have no fresh live evidence. Keep it live, keep it small, and watch for the first real trades to see whether the out-of-sample promise holds.