Medium-Term Momentum, Anew
I hope you've been enjoying the summer so far.
In early March, we highlighted Medium-Term Momentum as a factor that was overbought in the market. In the intervening time, we've seen the factor sell off on both a cumulative and normalized basis, stage a brief rally, and then sell off some more. Today, we're now recognizing it as an Oversold factor.
As you can see, after rallying in the month of May, Medium-Term Momentum has pulled back on both a cumulative and normalized basis, falling from +5.82% in cumulative return on the recent June 5th peak, to 4.49% today. On a normalized basis, the factor has declined from +.91 standard deviations above the mean -1.49 standard deviations below the mean.
As a reminder, we define Medium-Term Momentum as cumulative return over the past 12 months excluding the most recent month.
Looking at the recent normalized chart, we can see that this factor is subject to some steep peaks and valleys, with the most dramatic normalized trough being -3.19standard deviations below the mean in early January 2018. We'll continue to track this factor as it sells off and will send an update when we start seeing an inflection point that suggests a reversion to the mean for momentum.
As always, if you'd like to see the impact of any of these factors on your portfolio's performance and risk profile, or would like to better understand how we measure the relationships between factors, please don't hesitate to reach out.