Momentum Factor: Intra vs Cross-Sector

May the Force Be with You…

June 2017. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Intra vs cross-sector Momentum factor profiles look remarkable similar
  • Momentum is like a force that permeates sectors and countries
  • Sector analysts need to pay attention to cross-sector Momentum


Gravity is one of the fundamental laws of nature and every planet is affected by it, although the force of gravity might be quite different depending on the mass of the planet. We believe that factors are comparable to gravity in the sense that charts and metrics might look slightly different depending on how the factor is defined and what assumptions are used, but you can’t escape gravity and the trend will look similar. In this short research note we will analyse the Momentum factor and see how different the profiles look when the factor is calculated intra versus cross-sector.


We use the standard academic definition for the Momentum factor of taking the 12-month return excluding the last month and go long winning and short losing stocks. We take the top and bottom 30% of the sectors and stock universes and calculate factor performance beta-neutral (read Factor Construction: Beta vs $-Neutrality). Stocks require a minimum market capitalization of $1bn and 10bps of transaction costs are included. Data is available for all developed markets, but only meaningful for the US given sufficient number of stocks in each sector to make the analysis statistically significant.


The chart below shows the performance of the Momentum factor (long / short) in the US for 11 sectors, cross-sector, and a combined profile, which is the simple average of the 11 sector profiles. We observe quite a range of outcomes in terms of profitability and some similarities, e.g. all seem to have experienced a crash in 2009 (try Finominal’s Time Machine for recreating historical track records).