Methodology
How Index-Edge systematic momentum portfolios are constructed and managed.
1. Strategy Types
Index-Edge offers two distinct momentum strategy types across multiple geographies. Both are fully systematic and rules-based — no discretionary decisions are made.
Ranks stocks within a defined universe by their composite momentum score and holds the top-ranked positions. Rebalances monthly on the first Monday, rotating only entries and exits. Fully invested at all times.
Applies market trend filters before stock selection. If trend conditions are unfavourable, the portfolio moves entirely to cash. Proceeds with stock selection only when market conditions pass the filter. Rebalances weekly every Monday.
2. Momentum Score
Each stock is ranked by a weighted composite of momentum scores and returns across multiple time frames. Longer time frames carry greater weight as they are more predictive of sustained momentum, with shorter periods serving as confirming signals.
Stocks with insufficient price history to compute the required lookback periods are excluded from ranking.
3. Universe Selection
Each portfolio operates within a predefined universe of stocks appropriate to its strategy and geography. Universes are reviewed and updated periodically to reflect changes in market composition and availability.
Index-Edge covers equity markets across multiple countries. Each country portfolio uses a universe of locally listed or relevant stocks for that market.
4. Rebalancing Process
Monthly — first Monday of each calendar month.
Weekly — every Monday.
At each rebalance, the strategy follows this sequence:
Download the latest closing prices for all universe stocks. Calculate composite momentum scores for each eligible stock.
Check market trend conditions. If conditions are unfavourable, move entirely to cash and skip the remaining steps.
Rank all stocks by composite momentum score. Select the top N as the new target holdings.
Compare new target holdings to current holdings. Stocks leaving the top N are exits. Stocks newly entering are entries. Stocks remaining are unchanged.
Sell all exits. Pool proceeds. Buy all entries with an equal share of pooled cash.
5. Cash Distribution Rule
Rule: Exit proceeds are pooled and divided equally among all new entries only.
Unchanged positions are never touched — they retain their full accumulated value between rebalances.
When positions are sold at rebalance, all proceeds are collected into a single pool. That pool is then divided equally among the new entry positions. Each new entry receives an identical cash allocation, regardless of its price or ranking position.
Each portfolio is denominated in the local currency of its primary market. Initial allocations and slot sizes are defined at construction time for each portfolio.
Long-term consequence: Unchanged positions accumulate value over time without being rebalanced to equal weight. A stock held continuously across multiple rebalances may grow to represent a larger portfolio weight than recent entries. This is intentional — the strategy allows winners to run.
6. Transaction Pricing
| Operation | Price Used | Rationale |
|---|---|---|
| Momentum ranking | Closing price | Standard — compares like-for-like across all stocks |
| Entry price (new buys) | OHLC average | Conservative approximation of real-world execution |
| Exit price (sells) | OHLC average | Symmetrical treatment of entries and exits |
| Daily portfolio valuation | Closing price | Official end-of-day mark-to-market |
| Benchmark NAV | Index close | Official index level |
OHLC average = (Open + High + Low + Close) / 4. For a monthly or weekly rebalancing strategy, this is a reasonable approximation of the average execution price across the trading day, more conservative than using the closing price alone.
7. Performance Calculation
Portfolio NAV is computed daily by marking all held positions to their end-of-day closing prices. The NAV index is initialised to 100 at inception and grows or declines with daily portfolio returns.
All returns, CAGR, drawdown, and Sharpe ratio statistics are computed from the daily NAV series. The Sharpe ratio uses the appropriate local short-term risk-free rate as the benchmark for excess return calculation.
8. Benchmark Comparison
Benchmarks are used solely for performance comparison. They play no role in stock selection, ranking, or portfolio construction decisions.
Each portfolio is compared against a relevant local or regional benchmark index appropriate to its geography and universe. Benchmark data is sourced from authoritative providers for each market.
9. Data Sources
| Data | Source | Notes |
|---|---|---|
| Stock prices (OHLC, close) | Marketstack API | End-of-day data across global exchanges |
| Benchmark indices | FRED / local providers | Appropriate benchmark per geography |
| Risk-free rate | FRED / local providers | Short-term rate appropriate to each market |
| Market calendar | pandas_market_calendars | Exchange trading day schedules |
10. Known Limitations
Stock universes reflect composition at the time of construction. Stocks that were delisted, merged, or removed during the backtest period may not be fully represented, potentially overstating historical returns.
The simulation does not deduct commissions, bid-ask spreads, market impact, or taxes. Actual investor returns would be lower by these amounts.
Momentum strategies are known to experience sharp reversals during market recoveries from steep selloffs. These events can cause significant short-term underperformance.
Each portfolio holds a limited number of positions, significantly less diversified than broad market indices. This can lead to higher volatility and larger drawdowns during adverse periods for the selected holdings.
All price data comes from third-party providers. Data errors, adjustments, or gaps in these sources would propagate directly into portfolio calculations and historical performance.
All performance results are model results. See our full Financial Disclaimer before making any investment decisions.