Cross-Sectional Momentum Rotation with Funding and Risk Controls
Summary
The article develops a market-neutral rotation strategy for volatile perpetual futures. It ranks contracts using a composite of price momentum and funding rates, taking long positions in the strongest names and shorts in the weakest with balanced notional exposure. Rolling cross-sectional regressions estimate factor weights, while time-series significance shrinks unstable coefficients. Funding rates are normalized to a common settlement interval before ranking, and inverse-volatility weighting plus portfolio volatility targeting are used to distribute and scale risk.
The author reports tests of several design choices, including better full-sample metrics after adding risk parity and stronger results for four-hour rotation than for very frequent rebalancing. The strategy also requires unified margin and strict execution controls: positions must be verified, incomplete long-short legs repaired or closed, and net exposure monitored. These results are specific to the author's sample of volatile crypto contracts; the article does not establish durable out-of-sample performance, and high turnover, fees, liquidity, exchange behavior, and changing factor effects remain material limitations.
Key ideas
- The strategy ranks perpetual futures by a combination of price momentum and funding rate, then pairs the strongest longs with the weakest shorts.
- Rolling cross-sectional regressions estimate factor weights, with coefficient significance used to reduce the influence of unstable signals.
- Funding rates from different settlement schedules must be converted to a common time basis before cross-contract comparisons.
- Inverse-volatility weights and portfolio-level volatility targeting aim to balance and control risk.
- Execution safeguards require verified, balanced positions and prompt repair or closure when all intended legs cannot be established.
- The reported results come from a specific sample and do not prove the strategy will remain profitable in other conditions.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.