ARKK Innovation Momentum

## ARKK Innovation Momentum — Full Methodology

### Dual Momentum Framework

1. **Absolute momentum:** ARKK's 3-month return must be positive (price trending up)

2. **Relative momentum:** ARKK must outperform QQQ over the trailing 3 months (innovation leading tech)

3. **Both conditions required** — absolute momentum alone isn't enough for a high-beta ETF

### Entry Criteria

1. ARKK 3-month return > 0 (absolute momentum)

2. ARKK 3-month return > QQQ 3-month return (relative momentum)

3. ARKK price above its 50-day SMA

4. Enter long at the close on the first day all conditions are met

5. Re-evaluate monthly

### Exit Rules

- **Absolute momentum fail:** Exit if ARKK 3-month return turns negative

- **Relative momentum fail:** Exit if ARKK underperforms QQQ for 2 consecutive months

- **Trailing stop:** 12% below the highest close (wide stop for high-beta asset)

- **Rotate to cash (T-bills)** when not invested

### Position Sizing

- Max 8% of portfolio — ARKK is extremely volatile (beta ~1.5 to QQQ)

- Treat this as a satellite/speculative allocation, not a core position

- Never average down on ARKK — momentum strategies cut losers

### Best Market Conditions

Works best during speculative growth rallies when innovation/disruption narrative is in favor (2020 pandemic beneficiaries, 2023 AI excitement). ARKK's concentrated holdings (TSLA, COIN, ROKU) make it a high-conviction bet on speculative tech. Catastrophic during risk-off periods (2022: -67%).

### Backtest Notes

Tested on ARKK/QQQ daily data from Nov 2014 (ARKK inception) to Dec 2024. The dual momentum framework avoided most of the 2022 drawdown. High CAGR is driven by the 2020 rally; post-2020 performance is more modest.