No. of Recommendations: 2
From K & K’s paper
“we use a simplified formula for GPM: only return and correlation information are combined for measuring absolute and relative momentum. By mitigating the return information with a correlation hedge, risk-adjusted performance can be improved in two separate ways: a boost of portfolio return is possible without compromising left tail risk (drawdowns) or, alternatively, risk can be reduced while preserving portfolio return. For these two variations we combine return and correlation into a generalized momentum measure as follows: . . .
GPMxM: the correlation multiplied return metric ri * ( 1 - ci )”
“Each month 3 out of 12 assets with the highest correlation hedged return readings are eligible for capital allocation next to the safety asset's allocation. For crash protection we will use the same "high protection" level as introduced in our PAA-contribution. With the protection level set to "high (2)" the capital fraction of the safety assets equals twice the fraction of assets with non-positive momentum in the risky universe. The backtests in the original paper cover the 45+ year period December 1970 until May 2016.”
The GTR1 GPM fuzzy doesn’t use the either the same momentum or correlation equations but the way they are put together follows the same concept.
Correlation: tscorr(TR21,RiskyEWTR21,0,231,1,step0)
Momentum: linear(0.5,rrs(1,84),1,rrs(1,210))
ZiScore: product(Momentum,minus(1,Correlation))
Allocate Smartly’s write up on GPM states it a little more clearly.
https://allocatesmartly.com/keuning-kellers-genera... 