Citadel’s Strategy Anyone Can Use — Momentum and Reversion

In quantitative trading, a variety of strategies are employed to gain an edge in financial markets. While momentum and trend-based strategies are widely popular, they often fail to generate significant alpha unless packaged as YouTube financial courses.

The momentum and trend approach capitalizes on the notion that assets exhibiting recent price strength will likely continue on the same trajectory in the near future, or conversely, that weakness will persist. It’s important to distinguish between trend and momentum:

- Trend-following focuses on directional absolute returns, examining beta across the market.
- Momentum, on the other hand, looks at relative returns and is market-neutral, assessing a class or sector cross-section.

Reversion strategies operate on the assumption that prices will revert back to a mean or means over a period of time.

In this article, we will analyze these strategies and provide Python code implementations for studying them. We’ll progress to more advanced strategies and their analysis, including Pairs Trading.

We’ll tailor our analysis to the latest post-pandemic market regime, with most stock prices starting in the 2021s. All strategies discussed will be long-only and unleveraged.