The next test is to check how risk parity and trend following overlays (individually and later together) fare when they are applied on sub-components of the broad asset classes.
The authors next investigate portfolio performance when a momentum is applied both as standalone overlay and in combination with trend following on sub-components of the broad asset classes.
Momentum is a relative concept i.e., an asset can be going down but still have high momentum rank. Whereas trend following is an absolute concept i.e., either the asset is in uptrend and a candidate for asset allocation or it is in downtrend and not a candidate for asset allocation. So combination of these two is attractive and will ensure only assets that are in uptrend and have high momentum will pass. Following table has performance details of this combo overlay along with annotations.
I will cover the remaining paper in next post. Please let me know if you find this format interesting. Wish you all good health & good trading!
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