Price Momentum Score

In this article, we will discuss the methodology used in computing the price momentum score.

The Genesis of momentum can be traced back to paper by N Jegadeesh and S Titman titled “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency”.

Momentum refers to the phenomenon that winner stocks continue to win, and losers continue to lose. Just like value, the existence of momentum has now been empirically well established.

In academia, the preferred proxy for momentum is total returns in the last one year minus returns in the last month. However, just like value, research has shown that combining multiple momentum measures yields better results.

Our price momentum score, we use 3 metrics – the traditional 1-year return (minus 1-month return), 6-month return and price difference from 52-week high (lower value is better i.e., stocks near their 52-week high (positive sign) have higher momentum).

For each metric, we calculate a score between 0 and 100 using our standard scoring methodology. We then calculate an aggregate score by summing up the individual scores (equal weight). The stocks are then again scored between 0 and 100 based on the aggregate score to arrive at the final price momentum score.