Combining positive absolute momentum and positive carry produces significant positive risk adjusted returns across major asset classes and across different interest rate cycles.
Both relative and absolute momentum is important when choosing stocks. Stock should rank well relative to other stocks and also has positive price trend.
After factoring in transaction costs and risks, the highest returns and monthly alphas are obtained by buying the top five to eight of the top performing stocks of the previous six-month holding period.
Correlation among CTAs is generally high but this correlation becomes weaker when there are opportunities to capture momentum premiums. The dispersion in performance widens when correlation breaks down.