Cliff Asness of AQR Capital has a new white paper out, Momentum in Japan: The Exception that Proves the Rule, that is well worth the read. He convincingly makes the case “that because value and momentum strategies are strongly negatively correlated, they need to be studied as a system.” See the table below for value and momentum correlations around the world over the past 30 years.
As is detailed in the paper, both value and momentum strategies have been able to generate excess return all over the world. Even in Japan, where the returns to momentum strategies have not been nearly as large as they have been in the rest of the world, the benefits of combining value and momentum remain robust.
Those advisors who are seeking to construct asset allocations that are likely to provide excellent risk-adjusted returns over time should be all over this concept of mixing value and momentum.
[…] and others have shown, for example, that the excess returns of value and relative strength stocks are uncorrelated. That means that years where relative strength outperforms the market are likely to be years when […]
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