Our GEM backtest in Part III used a 12-month formation period to measure momentum. Here, we look at alternative formation periods with an eye on drawdowns.
6- through 12-month formation periods
Even though the 10-month version has higher returns, the 6-month one has lower peak drawdowns.
The average of all
The problem with picking one formation period out of 6 is that it smells of data-mining. What happens if you average them all out?
The average works in reducing drawdowns compared to the traditional 12-month version.
We will setup a virtual portfolio for this “averaging” strategy and post the link here when it is up and running.
Code and more charts on github.
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