The Thesis
Dual-momentum is a classic trend-follower: from a 24-name universe of large-cap US equities, it holds whatever is showing the strongest 60-day return and exits when the trend breaks. It is a simple, transparent rule with a long academic pedigree — and, as the numbers below show, a familiar risk profile to match.
Backtest Performance
Over 451 days the strategy returned 23.5% (final equity $12,349.63, ~12.5% CAGR), with a Sharpe of 0.95 and a max drawdown of 15.67%. Those are creditable headline figures. But two details deserve attention.
First, the win rate is just 28.79% across 136 trades. That is not a flaw so much as the signature of trend-following: most positions are small losers cut on a trend break, while a minority of large winners carry the return. It works only if the winners are big enough — and it means the equity curve can feel unrewarding for long stretches.
Second, turnover is 2,638% — the book is recycled roughly 26 times. Our modelled fees ($136 total) stayed manageable here, but that churn is a real-world cost and slippage risk that a paper backtest understates.
The Validation Gate: Failed
This is where balance matters. Walk-forward validation across four folds did not pass. The nuance:
- 3 of 4 folds were positive. Fold 3 was excellent (+25.59%, Sharpe 3.32) and Fold 4 solid (+13.34%, Sharpe 2.15).
- Fold 2 was the problem: -7.31% with a 17.15% drawdown and negative Sharpe. A five-month stretch of chop punished the strategy exactly as trend-following theory predicts.
- Out-of-sample return held up at 13.34%, and PSR is a healthy 0.893.
- But the Deflated Sharpe Ratio is 0.476 — below the pass threshold once we account for the 6 trials run during development. In plain terms: adjusted for how many variants we tried, we can't confidently reject the possibility that the in-sample edge is partly luck.
The honest read: promising, not proven. The single bad fold and the multiple-testing haircut are why the gate held it back from an auto-deploy blessing.
Recent Live Activity
The live sheet is quiet — pointedly so. The last six scheduled runs (2026-08-07 through 08-14) each executed 0 trades, leaving the book flat at $10,000 cash, $10,000 total. No positions, no rejections.
That is the trend filter doing its job: with no name clearing the 60-day momentum bar, the strategy correctly refuses to force a trade. It is disciplined behaviour, but it also means dual-momentum is currently contributing nothing — neither risk nor return — and will only re-engage when a clear trend reappears.
Verdict
Dual-momentum earns its keep in trending regimes and defends capital by stepping aside in choppy ones. The strengths are real: strong recent folds, positive OOS, sensible risk-off discipline. The risks are equally real: a failed validation gate, a sub-30% win rate that demands patience, heavy turnover, and a demonstrated soft spot for range-bound markets. We'd keep it live on a short leash — and watch that DSR before sizing it up.