Momentum Screening with Sharpe Ratio and Market Alpha

Summary

This strategy combines a rolling Sharpe ratio with market-model alpha to identify assets showing positive risk-adjusted and benchmark-relative performance. It describes calculating both measures over 180 days, using opening prices and prior closes for daily asset returns and the S&P 500 as the benchmark. Long entries are taken when both smoothed measures meet positive thresholds; the position is closed when either measure falls below its threshold. The source also requires an up-close for entry.

The document explains the rationale for pairing return quality with relative performance and suggests the approach can be applied to stocks and indexes. It identifies momentum reversals, delayed signals, unconstrained position size, and limited backtest coverage as important weaknesses. Its published backtest settings use BTC futures over roughly one day, which is too limited to establish performance; the text itself recommends broader validation, position controls, stop losses, and parameter testing.

Key ideas

• The strategy uses a 180-day lookback to estimate risk-adjusted returns and benchmark-relative alpha.
• Long entries require positive Sharpe and alpha readings, while negative readings prompt an exit.
• The source adds smoothed thresholds and an up-close condition to the entry logic.
• Lag, reversals, concentration risk, and limited backtesting weaken confidence in live results.

Tags

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