A dynamic capital allocation strategy that combines momentum longs with weakness shorts, adapting exposure based on market regime for enhanced risk-adjusted returns.
The combined strategy operates both long and short positions simultaneously, using a shared capital pool. This approach captures gains from both rising and falling stocks while reducing overall portfolio volatility through natural hedging.
The combined strategy dynamically allocates capital between long and short positions based on the market regime. This ensures the portfolio is always positioned to capture opportunities in the prevailing market condition.
When the market transitions from bearish to bullish (QQQ crosses above its 14-day MA), the strategy performs a rebalancing operation to free up capital for long positions.
The long component uses a 7-factor momentum scoring system to identify strong stocks with bullish technical characteristics.
The short component uses a 7-factor weakness scoring system to identify weak stocks with bearish technical characteristics.
All signal-based trades use a pending trades pattern. When a signal is generated at market close (Day N), the trade executes at the next day's open price (Day N+1). This eliminates look-ahead bias and reflects realistic execution.
The strategy maintains equal-weight positions through daily rebalancing. Each position is resized to its target allocation based on current portfolio value.
Target allocation per position is calculated daily based on total portfolio value and the number of target positions in each strategy.
The combined strategy delivers strong absolute returns by capturing opportunities on both sides of the market, with a higher Calmar ratio than the short-only strategy.
| Strategy | Total Return | Max Drawdown | Calmar Ratio |
|---|---|---|---|
| Long Only | 2,897% | 18.3% | 11.22 |
| Short Only | 2,752% | 28.5% | 7.03 |
| Combined | 6,325% | 23.5% | 12.47 |
View the combined portfolio with live positions, performance metrics, and daily trades.