Here's a question that sounds deceptively simple: if equities have been rising for six months, does that tell you anything useful about bonds, commodities, or currencies? Most traders answer instinctively — yes or no — then move on. But the evidence buried in decades of academic research and practitioner literature suggests the real answer is far more nuanced, and far more valuable, than either camp realises.
Cross-asset momentum is the observation that price trends in one asset class carry information about trends in others. Think of it like weather systems — a high-pressure front doesn't stay neatly inside one postcode. Macroeconomic regimes — rising inflation, risk-off panic, commodity supercycles — tend to persist across multiple asset classes simultaneously. Recognising that persistence is the whole game in portfolio construction.
Research from AQR Capital and the Journal of Financial Economics documents momentum as one of the most persistent return premia across asset classes globally. On the ASX, this shows up in the relationship between Australian equities, the AUD, iron ore futures, and domestic bonds. During commodity booms, these assets frequently trend in correlated directions — not because they're the same thing, but because the same macro story is writing the script for all of them.
The practical application is in how you size and diversify allocations. A portfolio that looks diversified by asset class can still be a single macro bet if all holdings are trending in the same direction. Traders using cross-asset momentum as a construction input might reduce overall exposure when multiple assets are trending together — recognising that apparent diversification has temporarily collapsed. For deeper grounding, the mechanics of momentum as a market phenomenon explain why persistence matters, while the academic framing around momentum investing strategies shows how broadly this has been studied. The specific challenge of portfolio construction under correlated regimes ties it all together.
The takeaway is refreshingly unglamorous: check whether your assets are all telling the same macro story before you congratulate yourself on diversification.
If everything in your portfolio is trending the same way, you don't have a portfolio — you have a leveraged opinion wearing a disguise.
This content is for educational purposes only and does not constitute financial product advice. Past performance is not indicative of future results. Profit Logic Ltd (ACN 688 669 936) accepts no responsibility for errors or omissions in this content or anywhere on this website. Always seek advice from a licensed financial adviser before making investment decisions.