@Raghuvamsi_Y There are many ways of going about momentum investing.
What you have done by capturing the price changes only (over 1year or 1y + 6m or any other time frame) is basic momentum investing. This is supposed to give good returns but at the risk of higher drawdown.
People work on this basic price change and add several filters or conditions to reduce the drawdowns without compromising too much on returns. Volatility conditions are added to help in this process.
In the example you have quoted of ERIS, from 58 when we rank based on price change only, it improves to 19 when we add the volatility factor.
If you look at the construct of our sheet, there are some steps that people should be aware of.
- We start by getting the price change over 1y and 6m
- We introduce the volatility factor and calculate a value known as momentum ratio.
- We go one step beyond this. We do not directly use this value (though we could). To ensure that we compare across time frames (1year and 6m) with a level playing field, we calculate the Z score for both time frames. This captures the distribution or performance of a scrip as compared to its universe in each time frame. We then rank based on this.
There is no right or wrong here. We can choose the method that we are comfortable with.
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