01 Jan Learning From Trendstat's "The Driving Force Behind Profits in the Managed Futures Industry"
Absolute momentum strategies benefit from large moves in markets.
In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.
Trendstat showed in “Figure A and B” of the paper (reproduced below) that the more change a market has, the more profits a portfolio will gain from that market. This observation is consistent across many asset classes. “Figure A” shows S&P 500 while “Figure B” shows Live Cattle.
“Figure D” of the paper (reproduced below) shows the same observation indicating that changes in price on average for all markets generate more profits for absolute momentum strategies as a whole.
Research Paper: The Driving Force Behind Profits in the Managed Futures Industry
Authors: Tom Basso
Company: Trendstat Capital Management