{"id":2083563,"date":"2018-07-11T18:04:01","date_gmt":"2018-07-11T12:34:01","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2083563"},"modified":"2018-07-11T18:04:01","modified_gmt":"2018-07-11T12:34:01","slug":"simple-momentum","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2018\/07\/11\/simple-momentum\/","title":{"rendered":"Simple Momentum"},"content":{"rendered":"

Michael Batnick, in his blog<\/a> titled “Simple Momentum,” proposes a strategy that follows a simple rule:<\/p>\n

If the S&P 500 outperformed 5-year U.S. treasury notes over the previous twelve months, invest 100% of this portfolio in the S&P 500 in the following month. If the 5-year U.S. treasury notes outperformed the S&P 500 over the previous twelve months, invest 100% of this portfolio in bonds in the following month.<\/em><\/p>\n

It outperformed the S&P 500 with significantly lower drawdowns. Could the same strategy work with Indian indices? We took NIFTY 50 and MIDCAP 100 indices and paired it with the 5-10 year tenure gilts.<\/p>\n

Returns<\/h3>\n

The strategy returns are significantly lower than a simple buy and hold. December 2004 through June 2018, the NIFTY 50 version of it under performed buy and hold by 6% and the MIDCAP 100 version by 34%. This is before transaction costs and taxes. Here are the cumulative return charts:<\/p>\n

\"NIFTY<\/p>\n

\"MIDCAP<\/p>\n

Drawdowns<\/h3>\n

The simple momentum strategy did have lower peak drawdowns than a buy and hold:<\/p>\n

\"NIFTY<\/p>\n

\"MIDCAP<\/p>\n

What keeps you out of the troughs also ends up keeping you out of the peaks. This is highlighted by how the strategy behaved in 2008 and 2009:<\/p>\n

\"NIFTY<\/p>\n

Conclusion<\/h3>\n

The simple momentum strategy is perhaps too simple. The backtest doesn’t capture transaction costs and taxes that would further ding the already lagging gross returns. <\/p>\n

You can peruse the code and the charts used in this blog on github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Michael Batnick, in his blog titled “Simple Momentum,” proposes a strategy that follows a simple rule: If the S&P 500 outperformed 5-year U.S. treasury notes over the previous twelve months, invest 100% of this portfolio in the S&P 500 in the following month. If the 5-year U.S. treasury notes outperformed the S&P 500 over the … <\/p>\n","protected":false},"author":2,"featured_media":2078773,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3541,3491],"class_list":["post-2083563","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-backtest","tag-momentum","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2083563","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2083563"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2083563\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2078773"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2083563"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2083563"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2083563"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}