Strategies · Core
Residual Momentum
Rank on residual (idiosyncratic) past returns after taking out market/factor beta — momentum with less factor crash.
Definition
Regress each name on the market (or FF factors), take the residual return over 12-1, then sort on that residual. Long high residual winners, short residual losers. You shed a lot of the 2009 factor rebound that kills raw momentum.
Why it matters
Raw momentum’s crash is often a factor bounce. Residual mom keeps the name-specific continuation.
Case
2009: market losers bounce as a cohort; raw mom shorts them and dies. Residual mom had already taken the market out of the rank.
How to read it
Which factors you residualize. Residualizing too many factors can residualize the signal away.
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