01 Jan Learning From Trendstat's "The Driving Force Behind Profits in the Managed Futures Industry"

Absolute momentum strategies benefit from large moves in markets.

In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.

Trendstat showed in “Figure A and B” of the paper (reproduced below) that the more change a market has, the more profits a portfolio will gain from that market. This observation is consistent across many asset classes. “Figure A” shows S&P 500 while “Figure B” shows Live Cattle.

Source: Trendstat

Source: Trendstat

“Figure D” of the paper (reproduced below) shows the same observation indicating that changes in price on average for all markets generate more profits for absolute momentum strategies as a whole.

Source: Trendstat

Research Paper: The Driving Force Behind Profits in the Managed Futures Industry

Authors: Tom Basso

Company: Trendstat Capital Management