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A related idea explains why cross-sectional momentum strategies on single names are correlated with directional trend-following strategies on futures (e.g. +30% correlation of SG Trend Index with FF momentum factor -- normally even higher for real-world momentum implementations)https://twitter.com/macrocephalopod/status/1369418204263706626 …
At first glance they appear unrelated -- trading universes do not overlap, and one is market-neutral whereas the other is explicitly directional.
But many of the same factors drive both futures markets and single names. For example, oil is up a lot, as are stocks with high oil beta, so both trend followers and cross-sectional momentum are "long oil". Same bet through different instruments.
Another example, the yield curve steepened a lot so trend followers are short high duration and long low duration. Cross-sectional momentum strats will be long stocks that benefit from a steep yield curve (e.g. banks). Same bet.
Interestingly there is little to no correlation due to trend exposure to equity indices, since this risk is generally hedged in cross-sectional momentum strats (though not always, they can run positive/negative beta exposure and this will generate +ve corr with trend)
Instead it is almost all due to single name correlation with macro factors (currencies, rates, commods) that trend followers explicitly bet on, and cross-sectional momentum strats are betting on implicitly.
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