Omega Point Blog

Factor spotlight: Medium-Term Momentum

Omer Cedar

Factor spotlight: Medium-Term Momentum

March 09, 2018

I wanted to highlight an important signal our Factor Profile tool is currently flashing. This observation represents the culmination of a trend we've been following for one of the most important factors in the market: Medium-Term Momentum.

  • We define Medium-Term Momentum as cumulative return over the past 12 months excluding the most recent month.
  • This factor has enjoyed a mostly steady climb in the past year, up 6.51% (on an absolute cumulative basis) from Mar 8, 2017 - Mar 8, 2018.
  • Since Jan 1, 2018, normalized return has increased from -2.22 standard deviations below the mean (Extremely Oversold) to today’s 1.93 SD above the mean (Overbought).
  • In the below animation, you can see that the trend peaked on Tuesday at 1.97 SD, a hair short of triggering the "Extremely Overbought" signal, after having already exceeded any other normalized peak in the past year

  • This factor has now declined to 1.93 SD above the mean (as of Mar 8), which may indicate we are now on the downlope of the trend and that this factor has hit an inflection point.

Please let us know if you would like to see what Medium-Term Momentum looks like in your portfolio.

Regards,

Omer