Dual Momentum Strategy
By EdgeTools
This Pine Script™ strategy implements the "Dual Momentum" approach developed by Gary
Antonacci, as presented in his book Dual Momentum Investing: An Innovative Strategy for
Higher Returns with Lower Risk (McGraw Hill Professional, 2014). Dual momentum investing
combines relative momentum and absolute momentum to maximize returns while
minimizing risk. Relative momentum involves selecting the asset with the highest recent
performance between two options (a risky asset and a safe asset), while absolute
momentum considers whether the chosen asset has a positive return over a specified
lookback period.
In this strategy:
Risky Asset (SPY): Represents a stock index fund, typically more volatile
but with higher potential returns.
Safe Asset (TLT): Represents a bond index fund, which generally has
lower volatility and acts as a hedge during market downturns.
Monthly Momentum Calculation: The momentum for each asset is
calculated based on its price change over the last 12 months. Only assets
with a positive momentum (absolute momentum) are considered for
investment.
Decision Rules:
Invest in the risky asset if its momentum is positive and greater than that
of the safe asset.
If the risky asset’s momentum is negative or lower than the safe asset's,
the strategy shifts the allocation to the safe asset.
Scientific Reference
Antonacci's work on dual momentum investing has shown the strategy's ability to
outperform traditional buy-and-hold methods while reducing downside risk. This approach
has been reviewed and discussed in both academic and investment publications,
highlighting its strong risk-adjusted returns (Antonacci, 2014).
Reference: Antonacci, G. (2014). Dual Momentum Investing: An Innovative Strategy for
Higher Returns with Lower Risk. McGraw Hill Professional.
//@version=5
strategy("Dual Momentum Strategy", overlay=false, precision=2, calc_on_every_tick=true,
initial_capital=20000, currency=currency.USD, slippage=1,
commission_type=strategy.commission.cash_per_order, commission_value=0.05)
// Custom Inputs
period = input.int(12, title="Momentum Period (Months)", minval=1)
safe_asset = input.symbol("TLT", title="Safe Asset (Bonds)")
risky_asset = input.symbol("SPY", title="Risky Asset (Stocks)")
// Monthly Return Calculation
getMomentum(symbol) =>
src = request.security(symbol, "M", close) // Monthly close prices
momentum = (src - src[period]) / src[period] // Relative return over the historical
period
momentum
// Momentum Calculations
momentum_risky = getMomentum(risky_asset)
momentum_safe = getMomentum(safe_asset)
// Dual Momentum Decision
// Absolute Momentum: Only select risky asset if its momentum is positive
is_risky_positive = momentum_risky > 0
is_risky_higher = momentum_risky > momentum_safe
// Strategy Rules: Buy risky asset only if both conditions are met, otherwise allocate to
the safe asset
if (is_risky_positive and is_risky_higher)
strategy.entry("Long Risky Asset", strategy.long)
strategy.close("Long Safe Asset")
else
strategy.entry("Long Safe Asset", strategy.long)
strategy.close("Long Risky Asset")
// Plot Information
plot(momentum_risky, color=color.blue, title="Momentum Risky Asset")
plot(momentum_safe, color=color.red, title="Momentum Safe Asset")
