APPENDIX B
ABSOLUTE MOMENTUM: A SIMPLE RULE-BASED STRATEGY AND UNIVERSAL TREND-FOLLOWING OVERLAY
ABSTRACT
There is a considerable body of research on relative strength price momentum but much less on absolute momentum, also known as time-series momentum. In this paper, we explore the practical side of absolute momentum. We first explore its sole parameter—the formation, or look-back, period. We then examine the reward, risk, and correlation characteristics of absolute momentum applied to stocks, bonds, and real assets. We finally apply absolute momentum to a 60/40 stock/bond portfolio and a simple risk parity portfolio. We show that absolute momentum can effectively identify regime change and add significant value as an easy-to-implement, rule-based ...
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