Absolute Momentum

Absolute momentum (also known as time-series momentum or trend following) compares an asset's trailing return against an absolute baseline, typically its own historical return or the risk-free rate (cash).

While relative momentum selects *which* equity index is performing better, absolute momentum determines *whether* equities should be held at all. If the trailing return of the chosen equity index is negative or lower than the return on risk-free Treasury Bills, absolute momentum flashes a warning signal.

In tactical strategies like GEM and Dual Momentum (DM), absolute momentum acts as an automated circuit breaker. If the trend turns negative, the strategy moves 100% of capital into Aggregate Bonds or Cash. This single filter allowed dual-momentum investors to completely bypass the multi-year bear markets of 2000-2002 and 2007-2009.

Absolute momentum provides a robust structural defense against systemic market crashes, converting equity downside into interest-earning periods in bonds or cash. However, it can lag in fast, short-duration crashes (like March 2020) and can generate false signals in choppy, sideways markets.