Cross-asset value and momentum
PortfolioAdvanced
Value and momentum can be applied across asset classes, not only inside equities. Asness, Moskowitz, and Pedersen studied both premia in many markets, and a tactical version combines a value score with a momentum score to size positions. The portfolio is a diversified macro book. A single stock's price-to-book ratio is not this strategy.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- For each asset class in a fixed universe, compute a value measure that fits that class, such as purchasing-power or real yield for currencies and a long-run reversal or valuation for equities, and a momentum measure such as a 12-month return. Combine the ranks with weights you publish in advance. Go long the attractive combination and short the unattractive one. Rebalance monthly. Keep the value definition stable.
- Where AI fits
- AI can compute each asset's value and momentum with point-in-time inputs and can stop you from using an equity valuation ratio on a commodity. It can show the correlation of the two sleeves. If value and momentum cancel every month, the combination rule is hiding two bets rather than managing them.
- Markets
- A diversified set of equity indexes, bonds, currencies, and commodities via futures or funds.
- Timeframes
- Monthly.
- Risks
- Value can lose for a decade. Momentum can reverse in a month. Combining them reduces some pain and creates a more complex thing to abandon at the wrong time. Valuation data for macro assets is ambiguous. Leverage and roll costs turn a paper spread into a different return.