Home / Ideas / Elastic Asset Allocation (EAA)
Elastic Asset Allocation (EAA)
generalized momentum weighted by volatility and correlation
EAA extends dual momentum by weighting each held asset by a multiplicative score of return momentum, inverse volatility and inverse correlation-to-the-universe, so crowded/highly-correlated winners are down-weighted — a diversification-aware sizing layer that plain top-N momentum lacks, and one that helps when cross-asset correlations spike as flagged for 2026.
Universe
~8-12 cross-asset ETFs (e.g. SPY, QQQ, EFA, EEM, VNQ, DBC, GLD, HYG, TLT, IEF) with a cash/T-bill proxy as the crash asset.
How it works
Monthly, rank assets by a generalized momentum score zi = (ri^wR)·((1-ci)^wC)·(1/vi^wV); hold the top-N with positive absolute momentum at score-proportional weights, routing the remainder to cash when fewer than N pass; rebalance monthly.
Expected performance
Research-derived Sharpe estimate: 0.5–0.9.
Backtest this idea with SignalChain
This is a research lead — not a finished backtest. SignalChain takes an idea like this and runs the whole pipeline inside Claude Code: it researches the concept against academic and practitioner sources, sets benchmarks, writes and lints a VectorBT backtest, runs it, and grades the result PASS/FAIL. One command:
/signalchain EAA: monthly, score = momentum^wR * (1-corr)^wC / vol^wV across 10 cross-asset ETFs; hold top-N positive, weight by score, rest cash
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Research & sources
- papers.ssrn.com — papers.ssrn.com
- gold.org — gold.org
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Not financial advice. This page describes a research idea, not a recommendation. Any performance figures are hypothetical, research-derived estimates and are not indicative of future results. SignalChain is a research and educational tool; you are solely responsible for any decisions you make.