Factor Spotlight
Factor University

Momentum and Sector Correlation

Over the past several weeks, we've watched normalized factor return for Medium-Term Momentum revert from a peak of +1.97 standard deviations above the mean to -0.81 SD below the mean on April 19th, with a curve that appears to be gradually flattening.


This week, I wanted to look at momentum from a slightly different angle after discussions with several PMs over the past few days. A common theme that I've been hearing is concern around the Tech sector (which we've seen sell off on a normalized basis over a similar time frame).


What I found interesting is that the ETF Correlation portion of our Factor Profile tool is currently flagging Medium-Term Momentum as being most correlated with Semiconductor, Hardware, & Software ETFs.

Screen Shot 2018-04-20 at 12.11.03 PM

If we take a look at the ETFs that were most correlated to Medium-Term Momentum three years ago (Apr 2015), the highest correlations were actually in the Healthcare and Biotech sectors. Momentum had very little impact on Tech at the time.

Screen Shot 2018-04-20 at 12.34.38 PM

Because momentum is such a heavily tracked factor in the market, it's important to understand its relationship with specific sectors in order to understand what may be trading alongside momentum at any given time -- and see what the implications might be in your own portfolio.

Please let me know if you'd like to see the impact of momentum (and other) factors on your portfolio's performance and risk profile.


Related Insights
See All Insights

What Forces Are Impacting Your Performance? Find Out Now...

Schedule a Call