Composite Momentum Score — 12M/6M/1M Momentum Methodology
How AIBROKER's composite momentum score combines 12-month, 6-month, and 1-month total return into a single volatility-adjusted score used in daily stock rankings.
AIBROKER's composite momentum score combines 12-month, 6-month, and 1-month total return into a single, volatility-adjusted ranking metric. This page documents the math, the rationale, and how to interpret the score on the daily ranking pages.
Definition
The composite momentum score is a weighted combination of 12M, 6M, and 1M total return for each ticker, divided by realized 60-day volatility. The weighting emphasizes the 12M and 6M components — the horizons academic literature has shown to be the most robust momentum signals — while the 1M component captures recent acceleration. Volatility adjustment prevents high-vol names from dominating purely by chance.
Why three horizons?
12-month momentum is the canonical Jegadeesh-Titman signal and the most academically robust. 6-month momentum reduces lag and adapts more quickly to leadership rotation. 1-month momentum captures acceleration, but on its own is dominated by short-term reversal effects — the well-documented tendency of last month's winners to underperform this month. Combining the three horizons captures the persistent component and dampens the noise.
Volatility adjustment
Without adjustment, the highest-momentum names are systematically the highest-volatility names — they got there by moving the most. Dividing momentum by realized 60-day volatility neutralizes that bias and surfaces names with risk-adjusted trend strength.
How the score is bucketed
- Scores are computed daily after the regional close.
- Each constituent's score is converted to a rank within its universe (1 = highest).
- Top-K cohorts (top 3, top 5, top 25) are surfaced as actionable subsets on the rankings pages.
- The engine can scale or zero exposure to the top-K cohort from the ERM regime state, but the published strategies do not enable it — their exposure is unconditional.
What the score does NOT tell you
- It is not a price target or fair-value estimate — it is a relative-strength signal.
- It does not consider fundamentals, balance sheet quality, or analyst views directly.
- A top-ranked name can still be in a drawdown; the score is relative to its peer universe.
Further reading
Frequently asked questions
What is a composite momentum score?
A composite momentum score combines multiple momentum horizons — typically 12-month, 6-month, and 1-month total return — into a single ranking metric, usually adjusted for realized volatility so that high-vol names do not dominate purely by chance.
Why combine 12M, 6M, and 1M momentum?
12-month momentum is the most academically-robust signal, 6-month adapts more quickly to leadership rotation, and 1-month captures acceleration. Combining the horizons captures the persistent component and dampens the noise from any single window.
Why divide by volatility?
Without volatility adjustment, the highest-momentum names tend to be the highest-volatility names — they got there by moving the most. Dividing by realized 60-day vol surfaces names whose trend strength is high per unit of risk, rather than purely high in absolute terms.
Is composite momentum the same as relative strength index (RSI)?
No. RSI is a short-term oscillator (typically 14-day) used in technical analysis to flag overbought/oversold conditions. Composite momentum is a cross-sectional ranking signal over months-to-quarters that academic research has documented as a robust risk premium.