Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have significantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength momentum does not expose investors to severe crashes during crisis periods, and its profits are remarkably consistent over time. We uncover similar results when we vary the sorting period for cumulative returns between 3 and 12 months.
Composite of long/short premia, including Absolute and Relative Momentum performs well when Equities or Bonds perform poorly. Absolute Momentum is a good complement with Private Equity with negative correlation.