CASSIA TRADING
INVESTING MASTERY COURSE
MODULE 03 • ADVANCED STRATEGIES
DUAL MOMENTUM
INVESTING
Combining Absolute (Time–Series) and Relative (Cross–Sectional) Momentum for superior risk-adjusted returns.
RESEARCHER
Gary Antonacci (2012, 2014)
RECOGNITION
NAAIM Wagner Award Winner
STRATEGY
Global Equities Momentum (GEM)
What is Dual Momentum?
The Core Concept
A rules-based investing strategy that combines Relative Momentum (selecting the strongest asset) with Absolute Momentum (trend-following) to maximize returns while minimizing risk.
Dual Momentum answers two critical questions:
01. Which asset is strongest?
02. Should I be in ANY risky asset?
Asset Selection
Risk Control
Superior Edge
Why It Matters & Innovation
Captures the Upside
Keeps you invested in the best-performing market (US vs International) during bull runs.
Truncates Left-Tail Risk
Moves entirely to safety (bonds) when trends break, avoiding major drawdowns like 2008.
KEY INNOVATIONS
12-MONTH
Optimal lookback period
MONTHLY
Low frequency review
3-ASSET
Simple GEM implementation
Two Types of Momentum
Absolute Momentum
TIME-SERIES MOMENTUM
"Are YOU getting stronger?"
Compares an asset's current price to its own past price to determine the trend direction.
THE SIGNAL RULE
If 12-month return > Risk-Free Rate (T-Bills)
→ RISK ON (Buy Asset)Relative Momentum
CROSS-SECTIONAL MOMENTUM
"Who is STRONGER than whom?"
Compares different assets to each other to identify the strongest performer in the group.
THE SELECTION RULE
Rank Universe by 12-month return
→ SELECT TOP WINNER| FEATURE | ABSOLUTE MOMENTUM (TREND) | RELATIVE MOMENTUM (STRENGTH) |
|---|---|---|
| Comparison | Asset vs. Its Own Past History | Asset vs. Other Assets (Peers) |
| Primary Goal | Market Direction Avoid downtrends | Asset Selection Pick the winner |
| Risk Control | HIGH: Moves to cash/bonds in bear markets | LOW: Fully invested even if all assets fall |
| Return Boost | MEDIUM: Avoiding losses compounds wealth | HIGH: Always owning the leader beats the average |
| Best For | Defensive protection (Bear Markets) | Offensive growth (Bull Markets) |
How They Work Together
Relative Momentum Alone
HIGH RISKPicks the winner but stays fully invested even in bear markets.
Absolute Momentum Alone
SAFETY FIRSTProtects capital in downtrends but misses the strongest asset leadership.
DUAL MOMENTUM
OPTIMALCombines best asset selection with downside protection. The "Free Lunch" of investing.
The Decision Logic
STEP 1: RELATIVE
Pick The Strongest Asset
(Winner Selection)
STEP 2: ABSOLUTE
Check The Trend
(Is Winner Trending Up?)
YES
INVEST 100%
NO
SAFETY / BONDS
GEM: Global Equity Momentum
Monthly Decision Logic
START MONTH
Compare 12-Month Returns
Is SPY > VEU or VEU > SPY?
Check Trend Quality
Is Winner's Return > T-Bills (or > 0)?
BUY WINNER
100% Allocation
BUY BONDS
100% AGG / Bills
🌐 THE GEM UNIVERSE
SPY
S&P 500 (US Stocks)
VEU
All-World ex-US
AGG
Aggregate Bonds
SAMPLE CALCULATION
SPY 12m Return: +15.4%
VEU 12m Return: +8.2%
Relative Winner: SPY (+15.4%)
Absolute Check: 15.4% > 0?
How to Implement GEM
Calculate 12-Month Returns
Pull total return data for SPY (US Stocks) and VEU (Intl Stocks) including dividends.
Apply Relative Momentum
Compare the 12-month returns of SPY vs VEU. Identify the higher performer.
Apply Absolute Momentum
Check if the Winner's 12-month return is positive (> 0%).
Execute & Hold
Allocate 100% of portfolio to the final selection. Hold for one month.
Why 12 Months?
Jegadeesh & Titman
Original academic validation showing 3–12 month momentum strategies generated ~1% monthly excess returns.
Moskowitz, Ooi, & Pedersen
"Time Series Momentum" – Confirmed robustness across 58 liquid instruments over 25 years with 12-month lookback.
Gary Antonacci
Dual Momentum research confirmed 12-month lookback provided optimal balance of signal stability vs responsiveness.
Investors underreact to new information due to anchoring bias. It takes approximately 12 months for fundamental news to be fully absorbed into prices. Momentum persists during this adjustment period.
Risk-Adjusted Performance by Lookback
Performance History
GEM: -6.2%
S&P: -37.6%
GEM: -7.8%
S&P: -37.0%
GEM: -3.2%
S&P: -19.4%
| Metric | GEM | S&P 500 | 60/40 |
|---|---|---|---|
| CAGR | 17.4% | 9.9% | 8.9% |
| Volatility | 12.9% | 15.5% | 10.1% |
| Max Drawdown | -20.3% | -50.9% | -34.2% |
| Sharpe Ratio | 1.24 | 0.48 | 0.65 |
| Winning Years | 82% | 74% | 79% |
HYPOTHETICAL PERFORMANCE DISCLOSURE: The results shown above are based on backtested data and do not represent actual trading. Past performance is not indicative of future results. The GEM strategy involves risks, including the potential loss of principal. Theoretical returns do not account for all trading costs, taxes, or market impact.
When Dual Momentum Works Best
CONDITION 01
Trending Markets
Strong directional moves (bull or bear) that persist for 6+ months. Clear trends allow absolute momentum to stay aligned with market direction.
IDEAL SCENARIO
2003–2007 Bull Market (Steady Uptrend)
CONDITION 02
Divergent Performance
When one region significantly outperforms another. Relative momentum shines by concentrating capital in the winning asset class.
IDEAL SCENARIO
2010s: US Stocks (+13%) vs Intl (+5%)
CONDITION 03
Clear Risk-Off Signals
During sustained bear markets or recessions where equities trend down together. Absolute momentum triggers a shift to bonds/safety.
IDEAL SCENARIO
2008 Financial Crisis (Avoided −40% Drop)
CONDITION 04
Monthly Discipline
Success requires strict adherence to end-of-month signals. Eliminating emotional overrides and mid-month noise is critical.
IDEAL BEHAVIOR
Executing rebalance on last trading day
When Dual Momentum Struggles
Choppy Markets
MODERATE RISKNo clear trends, frequent reversals, and whipsaws create false signals. Buying high and selling low repeatedly erodes capital.
Hover for Mitigation
Strategy Mitigation
Accept small losses as the "insurance premium" for avoiding major crashes. Historical data shows net positive performance despite these periods.
V-Shaped Recoveries
HIGH RISKFast crashes followed by immediate rebounds (<1 month). The system moves to safety but misses the initial snapback rally.
Hover for Mitigation
Strategy Mitigation
Don't second-guess the signals. Missing one quick rebound is better than catching a falling knife in a prolonged bear market. The long-term edge remains intact.
Narrow Universe
MODERATE RISKUsing only 3 assets (US, Intl, Bonds) limits diversification. If both equities perform poorly and bonds are flat, returns stagnate.
Hover for Mitigation
Strategy Mitigation
Consider expanded versions of Dual Momentum that include Commodities, Real Estate (REITs), or Gold to broaden the opportunity set.
Monthly-Only Cadence
LOW RISKThe strategy cannot react to intra-month shocks. A 1-month lag is built-in by design, which can feel slow during high volatility.
Hover for Mitigation
Strategy Mitigation
This is a feature, not a bug. It reduces noise and prevents over-trading. Daily monitoring often leads to emotional mistakes.
These limitations are features, not bugs. The strategy consciously accepts short-term underperformance in specific conditions to gain long-term protection against catastrophic loss.
Interactive Quiz: Apply GEM
You are implementing the GEM strategy for the upcoming month. Given the following 12-month total returns, what is your allocation decision?
CORRECT DECISION
WHY OTHERS ARE WRONG
- A (SPY): Lower relative strength than VEU.
- C (AGG): Trend is positive, no need for safety.
- D (Split): GEM is a concentrated winner-take-all strategy, not a split allocation.
Hands-on Lab: Build GEM
Your Task
Access Data Source
Open Yahoo Finance, Google Finance, or your broker.
Pull Historical Prices
Get month-end Adjusted Close for SPY (US) and VEU (Intl).
Calculate Returns
Compute 12-month percentage change: (Current − Past) / Past.
Apply Relative Momentum
Compare SPY vs VEU. Identify the winner.
Apply Absolute Momentum
Is Winner > 0%? Yes = Risk On. No = Risk Off (AGG).
Document Decision
Record your final allocation for the next month.
Practice Dataset
Use this sample data to verify your logic before using real-time prices.
| Date | SPY 12m |
VEU 12m |
Winner | Abs? | Signal |
|---|---|---|---|---|---|
| 2024-12-31 | +24.2% | +14.5% | SPY | YES | BUY SPY |
| 2022-09-30 | -16.8% | -21.3% | SPY | NO | BUY AGG |
FORMULA REMINDER:
Return % = ((PriceToday − Price12m_Ago) / Price12m_Ago) × 100
INSTRUCTOR CHALLENGE
Try this exercise with real current data from today's market. Compare your allocation results with your classmates.
Key Takeaways + Next Steps
Dual Momentum Synergy
Combines Relative Momentum (choosing the leader) with Absolute Momentum (staying risk-on only in uptrends) for superior risk-adjusted returns.
GEM Strategy Simplicity
A simple, rules-based approach using just 3 assets (US, Intl, Bonds), a 12-month lookback, and monthly rebalancing to reduce emotional bias.
Risk Management First
Historically strong performance comes primarily from avoiding large drawdowns during bear markets rather than chasing speculative upside.
Discipline is Essential
Expect short-term lags during whipsaws or V-shaped rebounds. Sticking to the system during these periods is critical for long-term success.
Expand for Diversification
Consider expanded universes (5–7 assets including Commodities, REITs, Gold) to broaden the opportunity set beyond basic equities.
Multi-Factor Approach
For advanced implementation, combine Dual Momentum with other factors like Value or Quality to further enhance returns and smooth volatility.
EDUCATIONAL PURPOSE ONLY
All performance data shown is hypothetical and backtested. Past performance does not guarantee future results. The strategies discussed involve risk of loss. Consult a qualified financial advisor before implementing any strategy. This content is not investment advice.