Time-series momentum (TSMOM) has a reputation as “crisis alpha” — the strategy that pays off precisely when equities fall apart. The pitch rests on a negative correlation to risk assets during drawdowns. But that correlation is conditional, and understanding when it holds is the whole game.
The conditional correlation
TSMOM’s convex payoff comes from trends persisting long enough for the strategy to be positioned against a falling market by the time the crash accelerates. In slow, grinding declines this works. In sudden gap-down events — a one-week shock — TSMOM is often still long when the move hits, and the crisis alpha simply isn’t there.
What the overlay actually buys
Blended at a modest weight over a long-only book, TSMOM meaningfully cuts tail risk in extended bear markets and does almost nothing for you in a fast crash. That’s a fair trade, but it should be bought with eyes open: it’s insurance against duration, not against surprise.