Our momentum process is separate and distinct from our valuation process. Instead of using fundamental economic factors, it uses two technical factors to evaluate markets: price and time. While markets tend to revert to their respective mean or fair value, over longer periods of time, markets are driven by other factors, like investor sentiment, over shorter periods of time. Behavioral finance reveals that investors react to market information for non-rational reasons. In some such instances and in certain markets more than others, this results in collective activity that produces identifiable and sustainable price trends. Think here of the Newtonian principle: markets in motion tend to stay in motion.

The Blue Diamond momentum process seeks to identify and quantify these markets in motion, demonstrating the strongest price trends in the near and mid-term. In addition to equities and bonds, it invests in cash-settled commodity futures and can take short positions. In analogy to the valuation process, the identified time series are scaled to the same risk level in terms of volatility. The optimal portfolio is determined by the highest Sharpe ratio.