SPDR Momentum ETF Heat Map:
The SPDR Momentum Heat Map is dedicated to U.S focused equity investors as it covers a S&P 500 ETF as well as the most relevant nine Select Sector SPDRs.
How to use:
- Directional trades: each ETF that has a higher (lower) momentum score (ranging from 0 to 100) than riskless money market is poised to perform positive (negative) on an absolute return basis (time-series momentum).
- Non-directional trades: ETFs with an increasing (decreasing) and higher (lower) momentum score than other ETFs or the S&P 500 should generate significantly higher (lower) relative returns than its corresponding counterpart on a mid-term time horizon.
Both theory and empirical evidence show that – if applied correctly – the momentum factor can be exploited quite profitably in two dimensions: cross-sectional and time-series. The only difference between the two approaches is that cross-sectional momentum focuses on groups of assets’ relative profits, whereas the time-series momentum focuses on single assets’ own past return.
A key requirement for benefiting from the substantial academic evidence is to use appropriate momentum scoring tools to measure these anomalies correctly for a wider range of assets. To put these findings into practice, we provide two ETF Momentum Heat Maps capturing both the time-series as well as the cross-sectional momentum within one chart. Both Heat Maps can be utilized to identify highly profitable directional and non-directional trade opportunities.
Directional trades are focused on betting on a particular absolute trend (time-series momentum) by taking a corresponding long- or short-position. Non-directional trades involve a long- and a short-position in two specific securities, betting on a relative diverge in price (cross-sectional momentum).
- To track the efficiency of our ETF Momentum Heat Maps, we provide a daily updated performance table which shows the cumulative return for each underlying ETF, in periods when the specific momentum score traded above (bullish signal) or below (bearish signal) the momentum score of the riskless money market.
- Although this view only considers time-series momentum in the first place, it also gives a clear indication of the effectiveness of their relative trade capabilities, as the outcome of those trades is just a combination of both sides from the return table.