How Drift and Carry Relate to Trend-Following Across Asset Classes
Summary
This note asks whether markets that perform well for trend-following do so because their prices have drifted favorably, because of carry, or because they convert those effects into trend signals more effectively. It compares bonds, foreign exchange, metals, volatility, agricultural commodities, energy, and equities using price drift and carry alongside trend Sharpe ratios at fast, medium, and slow momentum settings.
The reported comparison suggests that bonds, foreign exchange, and volatility convert adjusted price drift into trend returns in a fairly consistent way, while metals perform better than that relationship would predict. Equities are described as a weaker trend market, whereas agriculture and energy appear to have done better than their conversion ability alone would imply. This is a cross-market interpretation of summary tables and charts referenced from a book; the underlying data, test design, and statistical uncertainty are not included in the excerpt. It therefore offers a useful framework for comparing trend markets, but does not establish why the differences occur or show that the pattern will persist.
Key ideas
- The note compares trend performance with adjusted price drift and carry across several asset classes.
- Bonds, foreign exchange, and volatility show a comparatively consistent relationship between adjusted drift and trend Sharpe ratios.
- Metals are reported to generate stronger trend results than the drift relationship would suggest.
- Equities appear to convert drift into trend returns less effectively than the stronger trend markets.
- Agriculture and energy appear to outperform what their weaker trend conversion would imply.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.