Choosing Absolute or Relative Momentum for Risk-Targeted Allocation

Summary

The document compares strategic equity and bond allocations combined with tactical absolute or relative momentum. It frames the choice around investor constraints, especially whether leverage is available and how much portfolio volatility the investor can tolerate. Its recommendations express allocations in both risk weights and cash weights, recognizing that different asset volatilities make those weights diverge.

The stated findings favor relative momentum across the described cases, with suggested equity risk exposure varying by leverage and risk tolerance. The author advises leaning toward a higher equity allocation within suggested ranges if past risk boosting does not recur. The evidence is presented only as a summary of an experiment: the excerpt omits its data, testing design, performance figures, and robustness analysis. The recommendations therefore depend on the underlying results and on assumptions about leverage, future risk behavior, and the investor’s tolerance; the excerpt alone cannot establish that the allocations will generalize.

Key ideas

• The document compares fixed equity exposure with tactical absolute and relative momentum weighting.
• It distinguishes risk weights from cash weights because equity and bond volatility differ.
• The recommendations favor relative momentum while varying equity exposure with leverage access and risk tolerance.
• The author cautions that past risk boosting may not recur and suggests allowing for that uncertainty.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.