Dual Momentum (Relative + Absolute): 50% CAGR — Full Backtest Results

Welcome back to Avalon QuantBrief, where we put classic quantitative strategies to the ultimate modern test. Today, we are supercharging Gary Antonacci’s legendary Dual Momentum framework by introducing leverage, accelerated rebalancing, and a multi-horizon momentum filter. Let's explore how this aggressive adaptation transforms a conservative classic into an absolute alpha-generating powerhouse.

Backtest Summary (2017–present)

📈 CAGR: 50.3%
📉 Max Drawdown: -35.8%
⚡ Sharpe Ratio: 1.09
💰 Total Return: 2739.9%
🎯 Universe: QQQ, SPY, SOXX, XLK, XLF, IWM → Leveraged Proxies

The Mechanics of Classic Dual Momentum

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Gary Antonacci's original model operates on two elegant levels: relative momentum to select the strongest asset in a universe, and absolute momentum to act as a safety switch. If the top-performing asset fails to beat a risk-free rate or trend filter, the strategy exits to cash. This simple dual-filter approach has historically been highly effective at protecting capital during major multi-year bear markets.

Supercharging the Model with Leverage and Speed

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To maximize performance, we upgraded the classic model by swapping standard index ETFs for leveraged proxies like TQQQ, UPRO, and SOXL, while accelerating the rebalancing cycle to every three trading days. We also replaced the single lookback with a weighted composite momentum score consisting of fifty percent weight on one-month, thirty percent on three-month, and twenty percent on six-month performance. Finally, we implemented SPY's fifty-day moving average as our dynamic risk-off filter to trigger exits into BIL cash.

Staggering Backtest Performance Metrics

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Backtesting this adapted strategy from 2017 to the present yielded a staggering total return of 2,739.9 percent, translating to an incredible 50.3 percent compounded annual growth rate. Despite the inherent volatility of trading leveraged assets, the system maintained a highly respectable Sharpe ratio of 1.09. By dynamically rotating into cash during market regimes where SPY fell below its fifty-day moving average, we successfully avoided catastrophic buy-and-hold drawdowns.

Analyzing the Resilient Equity Curve

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While a standard leveraged buy-and-hold strategy suffered devastating drawdowns exceeding seventy percent during recent bear markets, our dual momentum variation capped the maximum drawdown at just 35.8 percent. The equity curve shows steady, exponential growth with rapid recovery phases after market corrections. The three-day rebalancing and composite momentum score allowed the portfolio to pivot quickly, capturing massive upside during bull runs while swiftly exiting to safety when the regime shifted.

The Final Verdict and Live Execution

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The verdict is clear: our adapted Dual Momentum strategy turns a conservative classic into an exceptional model for active quant traders. However, because of the rapid three-day rebalancing cycle, execution speed and strict discipline are vital to success. Subscribe to Avalon QuantBrief today to access the full code, join our community, and get live tracking sheets for this exact model.

⚠️ Not financial advice. This is for educational purposes only. Always do your own research before investing.

📄 Original paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2042750

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