Volatility-Targeted Momentum Portfolio

The Volatility-Targeted Momentum Portfolio indicator is a comprehensive portfolio management tool that ranks assets by momentum, applies volatility scaling to stabilize risk, and provides advanced performance analytics. It allows users to build long, short, or delta-neutral books while providing real-time attribution, Monte Carlo simulations, and risk-return visualizations.

Usage

The script is designed for systematic portfolio management across multiple asset classes. Users can select up to 15 tickers to form a universe. The engine then:

• Ranks Assets: Calculates momentum based on a user-defined lookback.
• Targets Volatility: Adjusts the weight of each asset so that high-volatility assets are sized down and low-volatility assets are sized up, aiming for a consistent risk contribution.
• Executes Strategy: Depending on the selected mode (Long Only, Short Only, or Delta Neutral), it selects the top or bottom performers.
• Filters Regimes: An EMA-based filter manages exposure, moving the portfolio to cash during unfavorable market conditions.

Details

This tool implements a cross-sectional momentum strategy paired with a volatility-targeting overlay. The volatility scaling is achieved by calculating the rolling annualized volatility of each asset and applying a multiplier to the return stream, capped between 0.1x and 5.0x. This ensures that the portfolio's "risk budget" is distributed more effectively than a standard equal-weighted approach. The script also includes comprehensive transaction cost modeling, accounting for both per-bar drag and turnover-linked fees when asset membership in the top/bottom baskets changes.

Settings

Portfolio Settings

• Portfolio Strategy: Choose between Long Only, Short Only, or Delta Neutral.
• Initial Capital: Sets the starting dollar value for equity scaling.
• Trading Days/Year: Adjusts for 252 (stocks) or 365 (crypto) days to annualize metrics.
• Target Volatility: The desired annualized volatility percentage for scaling.
• Transaction Fees: Percentage fee applied to simulate slippage and commissions.
• Momentum Lookback: The period used to calculate the price change for ranking.

Backtesting and Metrics

• Start Date: The beginning of the backtest period.
• Benchmark: Symbol used for Alpha, Beta, and Buy & Hold comparisons.
• Risk-Free Rate: Annualized rate used for Sharpe and Sortino ratio calculations.

Visualizations

• Attribution Chart: Shows the cumulative contribution of each asset.
• Monte Carlo Simulation: Generates future equity paths using Normal or Bootstrap distributions.
• Scatter Plots: Analyzes assets via Risk-Return, Alpha-Beta, or Leverage-Momentum views.
• Pie Chart: Displays current allocation weights and leverage per asset.

FAQ

• How do I interpret the Volatility Multiplier? The multiplier (volMult) rescales an asset's contribution to the portfolio. If an asset is twice as volatile as your target, it receives a 0.5x multiplier to normalize its risk impact.
• What is the difference between Normal and Bootstrap Monte Carlo? The Normal mode assumes returns follow a Gaussian distribution, while Bootstrap resamples actual historical returns, which better preserves "fat tails" and realistic market shocks.
• How do I access Volatility-Targeted Momentum Portfolio? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.