Home / Ideas / Residual (factor-neutral) cross-sectional momentum
Residual (factor-neutral) cross-sectional momentum
rank on stock-specific momentum after stripping Fama-French exposures
Blitz-Huij-Martens residual momentum removes market/size/value loadings, cutting momentum's factor timing and crash exposure and producing smoother, higher risk-adjusted returns than plain price momentum. A cleaner angle on cross-sectional momentum than 12-1 total return.
Why it's relevant now
With leadership rotating and factor loadings shifting fast in 2026, total-return momentum inherits unstable factor bets; residualizing isolates the firm-specific signal that recent work still finds robust.
Universe
Liquid US large/mid-cap ETF-tradable names — top ~100–200 by liquidity (e.g. S&P 500 constituents via yfinance), regressed on FF3 proxies (SPY, IWM-IWB size proxy, IVE-IVW value proxy).
How it works
Monthly, regress each stock's trailing 36-month returns on FF3-proxy factors, rank on 12-1 month residual return / residual vol, long top decile / short bottom decile, equal-weight, hold 1 month.
Expected performance
Research-derived Sharpe estimate: 0.3–0.7. Quantpedia long-short 0.34; long-only tilt often higher net).
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 Residual momentum: rank S&P 500 stocks on 12-1 month Fama-French-residual returns, long top decile short bottom decile, monthly rebalance
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Research & sources
- Quantpedia — Residual Momentum Factor — quantpedia.com
- Financial Analysts Journal — The Many Facets of Stock Momentum — tandfonline.com
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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.