Hierarchical Stock Momentum
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Portfolio Construction with Hierarchical Momentum
Antonello Cirulli; Michal Kobak; Urban Ulrych
- ?OLZ AG
- CHUniversity of Zurich
- Institute of Finance and Banking
- ?University of Zurich - Department of Banking and Finance
- CHSwiss Finance Institute
Strategy in a nutshell
Invest in MSCI ACWI stocks with the highest risk-adjusted momentum within 150 hierarchical clusters, filtering out negative performers. Equally weighted portfolio rebalanced monthly.
Economic rationale
Combining momentum with hierarchical clustering reduces concentration and risk, ensuring diversification while capturing consistent outperformance from high Sharpe-ratio stocks.
Backtest performance
Annualised return10.58%
Volatility12.87%
Sharpe ratio0.81
Maximum drawdown-50.75%