The Thesis
Dual-momentum is about as classic as trend-following gets: hold the strongest trending names by 60-day return, and exit when the trend breaks. It runs over a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), staples (PG, KO, WMT), healthcare (JNJ, UNH), and energy (XOM, CVX). The premise is that winners keep winning long enough to pay for the losers you cut quickly — which is exactly the shape the numbers take.
Backtest Performance
Over 451 days the strategy returned 23.5%, growing a $10,000 book to $12,349.63 — a 12.52% CAGR — with a Sharpe of 0.95 and a max drawdown of 15.67%. The win rate is a low 28.79% across 136 trades, which is not a red flag for momentum but a signature of it: you lose often and small, and win rarely and big. Fees were a negligible $136 total (about $1 a trade) with no FX cost.
The one figure that deserves a raised eyebrow is turnover of 2,638% — the book churns roughly 26x over the test window. That is a lot of trading to extract the return, and in a higher-fee or higher-slippage environment the edge would erode faster than the clean backtest suggests.
Walk-Forward Validation
This is where the picture gets more honest. Across four out-of-sample folds, three were positive:
- Fold 1 (Aug 2024–Jan 2025): +5.85%, Sharpe 1.23
- Fold 2 (Jan–Jul 2025): −7.31%, Sharpe −1.05, 17.15% drawdown
- Fold 3 (Jul–Dec 2025): +25.59%, Sharpe 3.32
- Fold 4 (Dec 2025–May 2026): +13.34%, Sharpe 2.15
Fold 2 is the cautionary tale: a choppy, trendless stretch where momentum whipsawed into a loss and the worst drawdown of any fold. The Probabilistic Sharpe Ratio is a healthy 0.893, but the Deflated Sharpe — which penalizes for the 6 trials run — drops to 0.476, and the validation gate failed. The strategy is not broken, but it did not clear the bar for overfitting-adjusted confidence, and that result should be respected rather than explained away.
Recent Activity
Notably, the live book has done nothing for over a week. Scheduled runs on Sep 25, 28, 29, 30 and Oct 1–2 each executed 0 trades, 0 rejections, holding $10,000 flat in cash. That is the system working as designed: with no name clearing the 60-day momentum threshold, it refuses to force a position. Discipline, not inertia — but a reminder that this strategy only earns when there is a trend to ride.
Verdict
Dual-momentum is a credible, well-behaved trend follower with a solid return profile and mostly consistent folds. The honest risks — a failed deflated-Sharpe gate, one ugly negative fold, heavy turnover, and a low win rate that demands patience — mean it belongs in a diversified roster, not as a standalone bet. Watch whether it deploys capital when trends reappear.