A great advantage of dual momentum is the low number of parameters (typically only a lookback length of 12 months is used). This reduces the likelihood that results are curve-fitted or uncovered by data-mining and subsequently useless in real-time trading.
The plot below compares a 12 month lookback against 1 month and a 50:50 combination of both lookbacks:
Annual returns and sharpe ratios are listed in the chart legend and are very similar.
Of major interest though, the correlation between ’12’ and ‘1’ monthly returns is only 0.62. Finding consistently uncorrelated strategies is difficult but rewarding. When the two strategies are combined, standard deviation is reduced and sharpe ratio is increased to 1.3.
A zoomed plot from 2000 to present is shown below:
The larger drawdowns experienced by the individual strategies (2002, 2009 and 2011) have been reduced by combining the two relatively uncorrelated curves, without sacrificing returns.