{"id":40890425,"date":"2024-04-21T11:51:37","date_gmt":"2024-04-21T06:21:37","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40890425"},"modified":"2024-04-27T10:15:40","modified_gmt":"2024-04-27T04:45:40","slug":"momentum-rebalance-frequency-part-ii","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2024\/04\/21\/momentum-rebalance-frequency-part-ii\/","title":{"rendered":"Momentum Rebalance Frequency, Part II"},"content":{"rendered":"\n<p><a href=\"https:\/\/stockviz.biz\/2023\/04\/18\/momentum-rebalance-frequency\/\">Previously<\/a>, we looked at momentum rebalance frequencies with a monthly increment. However, if you observe the individual returns of momentum stocks (<a href=\"https:\/\/zerodha.com\/z-connect\/varsity\/returns-under-momentum\">Returns under Momentum<\/a>), you&#8217;ll notice that the returns of momentum stocks tail off after the first two weeks. Does switching to a weekly rebalance frequency make sense?<\/p>\n\n\n\n<p>The biggest problem with a higher frequency of rebalance is the higher transaction cost that comes with it. So, we set the drag to be <strong>0.5%<\/strong> and run <strong>1-<\/strong> through <strong>4-week<\/strong> rebalancing scenarios.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/momentum\/rebal-frequency\/symRets-weekly.net.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>Turns out, there is an advantage to rebalancing a momentum portfolio once in two weeks rather than once a month. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/momentum\/rebal-frequency\/symRets-MOM_2-weekly.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>The transaction costs are roughly 5% (annualized) vs. 3% of the monthly rebalanced version.<\/p>\n\n\n\n<p>The main thing to watch out for is the portfolio overlap between rebalancing. The lower the overlap, higher the costs.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/momentum\/rebal-frequency\/symRets-weekly.overlap.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>Costs are permanent and immediate while returns are hypothetical and distant. Make of this what you will.<\/p>\n\n\n\n<p>Code and charts on <a href=\"https:\/\/github.com\/stockviz\/blog\/tree\/master\/momentum\/rebal-frequency\" data-type=\"link\" data-id=\"https:\/\/github.com\/stockviz\/blog\/tree\/master\/momentum\/rebal-frequency\">github<\/a>.<\/p>\n\n\n\n<p><strong>Related<\/strong>: <a href=\"https:\/\/stockviz.biz\/2020\/09\/07\/factors\/\" data-type=\"link\" data-id=\"https:\/\/stockviz.biz\/2020\/09\/07\/factors\/\">Factors<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Previously, we looked at momentum rebalance frequencies with a monthly increment. However, if you observe the individual returns of momentum stocks (Returns under Momentum), you&#8217;ll notice that the returns of momentum stocks tail off after the first two weeks. Does switching to a weekly rebalance frequency make sense? The biggest problem with a higher frequency &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2091813,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3541,3491],"class_list":["post-40890425","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\/40890425","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=40890425"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890425\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2091813"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40890425"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40890425"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40890425"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}