Momentum is heading into a higher vulnerability regime.
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Momentum is heading into a higher vulnerability regime.
Quant Insight’s MFERM model decomposes asset risk into macro and idiosyncratic components. The ratio of the two — Macro Share of Risk — has fallen from 13.4% to 6.8% on Citi’s Pure Momentum index over the last 20 sessions.
That is a bottom 4% 20-day contraction over 11 years.
The macro footprint in Momentum is draining out of the price.
Why it matters:
- MSR <5%: drawdown probability rises from 23% baseline to 33%
- MSR ≤3%: drawdown probability rises to 44%
- MSR >20%: drawdown probability falls to 9%
The relationship is monotonic: the lower MSR goes, the wider the return distribution becomes...
This matters for the live debate on how to hedge Momentum.
Continue reading our analysis by downloading the PDF above
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