Momentum Weighted Portfolio
A modification of the Rank Weighted (RW) Momentum Portfolio described in Part 10-2 of this Study is what I have called the Momentum Weighted (MW) Portfolio. This strategy uses a proprietary algorithm to calculate allocation weights that more accurately reflect the relative momentum of the individual assets rather than the simple Rank weights as described in Part 10-2. However, although absolute percentages differ from those calculated using the RW strategy, the relative order of the allocation weights remains the same. Thus, it is a “fine-tuned” version of the RW strategy.
For consistency I have used the same rules for selecting assets (top 4 assets ranked higher than SHY) and the same restraints/maximum allocations used in Part 10-2.
The performance of the Momentum Weighted (MW) Portfolio is shown below:
Comparison of Momentum Weighted (MW) Feynman 4 Portfolio performance with Equally Weighted (EW), Rank Weighted (RW) Portfolios, VTSMX and VTTVX.
Key performance characteristics of the Baseline MW Feynman 4 Portfolio are:
- CAGR: 15.25%
- Volatility: 12.39%
- Sharpe: 1.23
- Max Drawdown: 17.76%
With the exception of Maximum Drawdown, the performance of the “fine-tuned” MW Feynman Portfolio is slightly better than the RW Portfolio but still falls a little short of the simplest EW Portfolio.
Current Allocations are as calculated below:
Asset weights as determined on 6/27/2014 for a 4 Asset MW Portfolio
It can be seen from the above figure that the order of the allocation weights is the same as generated in Part 10-2 for the RW Portfolio but that the actual percentages show less variation.