03 — Research note
Momentum on stocks and equities.
A quarterly sector-then-stock momentum book (up to 50 names, costs not included) with a drawdown-based exposure scaler, tested against SPY over the full sample and on rolling one-year windows.
Research question
The note tests whether ranking US sectors and then stocks on blended momentum and stability scores produces higher full-period return than SPY, and how that edge behaves across 36 consecutive one-year windows from 2022-01-01 through 2024-12-01.
02 — Method
Method and data
- Sector score
- Top 5 sectors
- Stock momentum
- 70 / 30 score
- Up to 50 stocks
- Quarterly rebalance
Layer 01
Sectors
Score sector ETFs. Keep the top 5 as the stock universe.
Layer 02
Stocks
Score names inside those sectors. Hold up to 50, weighted by score.
Sector score on sector ETFs (daily close): 0.25·R(3M) + 0.25·R(6M) + 0.50·R(12M). The top five sectors define the stock universe.
Stock score: momentum 0.25·R(3M) + 0.5·R(6M) + 0.25·R(12M) combined 70% with technical stability (return consistency, volume stability, price strength) at 30%. Up to 50 names, score-weighted, rebalanced quarterly on the last trading day.
Drawdown rule: at 10% drawdown, exposure scales to 0.5; at 15%, to 0.25; exposure resets at the next rebalance. Backtests run from 2021 against SPY with transaction costs and slippage not modelled.
03 — Results
Backtest results
Full period (costs not included): strategy 66.3% versus S&P 500 40.7% (+25.6% relative), across 16 rebalances.
Rolling one-year windows (36 windows from 2022-01-01 to 2024-12-01): mean strategy return +9.32% versus SPY +9.65%, alpha −0.33%; best window +47.63% (1 May 2023–30 Apr 2024); worst −26.33% (1 Jun 2022–31 May 2023); positive windows 25 of 36.
Scores
The two formulas
Sector score 0.25·R(3M) + 0.25·R(6M) + 0.50·R(12M) Stock momentum 0.25·R(3M) + 0.5·R(6M) + 0.25·R(12M) Score 70% momentum + 30% technical stability
The top 5 sectors become the stock universe. Up to 50 stocks, weighted by score, rebalanced quarterly.
Full period
Full period, portfolio against the S&P 500
66.3%66.3%
Portfolio
Full period
40.7%40.7%
S&P 500
Full period
% · From 2021. Costs off. 16 rebalances.Momentum on stocks and equities research note. Full-period results. Outperformance +25.6%.
| Series | Kind | Value |
|---|---|---|
| Portfolio | Full period | 66.3% |
| S&P 500 | Full period | 40.7% |
- Full period
- +25.6%
- Outperformance
- Full period
- 16
- Rebalances
- Full period
- Off
- Costs
Rolling one-year windows
36 windows, summarised
The note prints the mean, the best, the worst, and the count of positive windows. It does not print the 36 returns, so they are not plotted.
- Mean portfolio
- +9.32%+9.32%
- Mean SPY
- +9.65%+9.65%
- Mean alpha
- −0.33%−0.33%
- Best
- +47.63%+47.63%
- Worst
- −26.33%−26.33%
- Positive windows
- 25 of 3625 of 36
Best window: 1 May 2023 to 30 April 2024. Worst window: 1 June 2022 to 31 May 2023.
Rolling one-year windows from 2022-01-01 to 2024-12-01 (36 windows). Percent returns.
| Mean portfolio | +9.32% |
| Mean SPY | +9.65% |
| Mean alpha | −0.33% |
| Best | +47.63% |
| Worst | −26.33% |
| Positive windows | 25 of 36 |
Rule
Drawdown steps
Documented exposure cuts at 10% and 15% drawdown; exposure resets at the next quarterly rebalance. Rule table only — not a plotted equity curve.
01
10% drawdown
Exposure 0.5
02
15% drawdown
Exposure 0.25
03
Next rebalance
Resets
Source: Momentum pitch, risk management. At 10% drawdown, exposure 0.5. At 15%, exposure 0.25. Reset at the next rebalance.
Limitations
- Static stock universe; survivorship bias.
- No transaction costs or slippage modelled.
- Backtest window limited to about five years of history.
Documented risks include momentum crashes, sharp reversals, concentration, turnover drag once costs are applied, and macro breaks in trends.
Rolling-window alpha is slightly negative on average despite the full-period outperformance versus SPY.