Dual Momentum Strategy with Niftybees & Goldbees

Trading Charts & Strategies 📈
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If you’ve been trading or investing for a while, you know how tricky it can be to balance risk and reward. Equities are great for growth but can hit you hard when there is a panic in the market. Gold, on the other hand, is steady but won’t get your portfolio racing. But what if you could get the best of both worlds by switching between them at the right time?

I recently tested a Dual Momentum Trading Strategy with Niftybees and Goldbees ETFs, using ChatGPT to backtest it over 14 years. The result? A total return of 1221.50% with a max drawdown of just -23.51%. Here’s the breakdown of how this strategy works and why it’s something every investor should consider.

Why Combine Equity and Gold?

Most of us know that equities and gold are pretty much on opposite ends of the risk spectrum. When the stock market tanks, gold usually steps up as the “safe haven” for investors. Equities like Niftybees can skyrocket but are prone to huge drawdowns.

In contrast, Goldbees tends to stay steady, giving you stability when equities are volatile.

So, why not combine the two and rotate between them based on momentum?

Here’s How the Strategy Works:

The rules are super simple, and that’s why I like it.

  1. Every quarter, check the last three months’ returns for Niftybees and Goldbees.
  2. If Niftybees is outperforming, put your money in Niftybees.
  3. If Goldbees has better returns, switch to Goldbees.
  4. Rebalance at the end of every quarter based on which asset is performing better.

This way, you’re always in the asset that’s showing the strongest momentum.

What Did the Backtest Show?

I used ChatGPT to backtest this strategy using EOD data for Niftybees and Goldbees over the last 14 years. Here’s what the data showed:

  • Dual Momentum Strategy (Niftybees & Goldbees Combined):

CAGR: 16.06%

Total Return: 1221.50%

Max Drawdown: -23.51%

  • Niftybees Buy-and-Hold:

CAGR: 11.93%

Total Return: 625.76%

Max Drawdown: -55.15%

  • Goldbees Buy-and-Hold:

CAGR: 11.43%

Total Return: 570.93%

Max Drawdown: -24.38%

The Momentum Strategy clearly outperformed buy-and-hold in terms of both return and risk. What really caught my eye was the much lower drawdown. While holding Niftybees through the 2008 crash would’ve given you a heart attack with a -55% drawdown, this momentum strategy only had a drawdown of around -8%.

Risk-Adjusted Returns: Sharpe Ratios

If you’re the type who likes digging into risk metrics, here are the Sharpe ratios for each strategy:

  • Momentum Strategy (Niftybees & Goldbees Combined): 0.95
  • Niftybees Buy-and-Hold: 0.41
  • Goldbees Buy-and-Hold: 0.47

The higher the Sharpe ratio, the better the return per unit of risk. And guess what? The momentum strategy blows the other two out of the water, almost doubling the Sharpe ratio of Niftybees buy-and-hold.

Here’s the year on year returns, momentum strategy has consistently made better returns. In last 14 year, only once momentum strategy has made negative returns. This clearly shows how we can stabilise the portfolio from extreme drawdown by diversifying with another asset class.

What Happens if We Exclude Goldbees?

I was curious about how the strategy would perform if I excluded Goldbees and just held cash when Niftybees was underperforming. So, instead of switching to gold, I tried sitting in cash (or liquid funds) when gold was doing better. Here’s what I found:

  • Total Return: 409.15%
  • Max Drawdown: -13.78%

While the drawdown was smaller, the total return didn’t even come close to the Dual Momentum Strategy that included both Niftybees and Goldbees. Clearly, gold plays a critical role in smoothing out those rough market periods.

And Here’s the Best Part—No Code Needed

All of this was done without writing a single line of code. I simply used ChatGPT, uploaded the data, and gave it a prompt to perform the backtest. Within seconds, it generated all the necessary results, showing how effective this simple strategy can be.

This proves that you don’t need complicated tools or coding skills to test and implement robust trading strategies. Sometimes, simplicity wins. If you’re interested in diving deeper into this concept, I highly recommend reading Gary Antonacci’s book on Dual Momentum. He explains the logic behind the strategy in detail.

Final Thoughts

Whether you’re an experienced trader or someone who prefers a more hands-off approach, this strategy offers the best of both worlds. You can protect your capital during downturns while still capturing strong upside momentum when the market is in your favor.

So, if you’re tired of high-risk, high-stress strategies and want a simpler, more reliable way to grow your wealth, give the Dual Momentum Strategy a shot. Trust me, the results speak for themselves.

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