Dual and Canary Momentum with Rising Yields/Inflation: Hybrid Asset Allocation (HAA)

15 Pages Posted: 3 Feb 2023 Last revised: 13 Apr 2023

Date Written: February 3, 2023

Abstract

Our new Hybrid Asset Allocation (HAA) is a follow-up on our Bold Asset Allocation (BAA). Using BAA as our inspiration, we try to compose a much simpler strategy for retail investors. We aim for a balanced but aggressive strategy and much lower cash-fractions than BAA. An important role for his new strategy is reserved for our ‘canary’ approach for crash protection, but now combined with traditional dual momentum to arrive at our novel ‘hybrid’ approach. For HAA, we use a new single canary asset, which asset turns ‘bad’ (has non-positive momentum) when yields and/or inflation are rising. Combined with traditional dual momentum for our offensive universe (where we replace bad TopX assets by our cash asset), we arrive at cash-fractions for HAA of half that of BAA, while return and return/risk is better than our balanced BAA strategy, with a much simpler model.

Keywords: Rising Yields, Inflation, Canary Universe, Dual Momentum, Absolute and Relative Momentum, Crash Protection, Backtesting, 60/40, PAA, VAA, DAA, BAA

JEL Classification: C00, C10, C22, G00, G11, G10, G14

Suggested Citation

Keller, Wouter J. and Keuning, Jan Willem, Dual and Canary Momentum with Rising Yields/Inflation: Hybrid Asset Allocation (HAA) (February 3, 2023). Available at SSRN: https://ssrn.com/abstract=4346906 or http://dx.doi.org/10.2139/ssrn.4346906

Wouter J. Keller (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NH 1081 HV
Netherlands
+31622392446 (Phone)

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