Don’t Be a One Trick Pony

From a 2009 paper entitled “Value and Momentum Everywhere” by Asness, Moskowitz, and Pedersen:

“Studying the interaction between value and momentum is also more powerful than examining each in isolation. The negative correlation between value and momentum strategies and their high expected returns makes a simple equal-weighted combination of the two a powerful strategy that produces a significantly higher Sharpe ratio than either Electronic copy available at: 3 stand alone and makes the combination portfolio far more stable across markets and time periods than either value or momentum alone.”

The paper in its entirety is a bit wonkish, however, it confirms that there is single investment strategy that is superior to all others. In fact, a combination of value investing and momentum investing has been proven to generate the strongest returns with the lowest portfolio volatility:


This also makes sense intuitively due to the fact that momentum and value strategies hold a negative correlation to one another and there are specific market periods in which one of the strategies is likely to generate strong above market returns while the other performs poorly. Combining the two strategies effectively creates a synergy which is nothing short of breathtaking.

Read the full paper here: Value and Momentum Everywhere