Does removing the effect of short-term co-movements improve portfolio performance over monthly horizons? Dow Jones Industrial Average Analysis

Portfolio strategies often seek to reduce exposure to short-term market fluctuations while maintaining robust performance over defined investment horizons. This study proposes a modification to the Markowitz model that filters out short-term co-movements in asset returns, aiming to construct portfolios less sensitive to transient fluctuations. Using historical data from the Dow Jones Industrial Average, we evaluate the performance of the proposed method relative to the traditional Markowitz and Naive models over investment horizons of one, three, and six months. The results indicate that portfolios constructed with the proposed approach generally outperform the benchmark models in terms of returns and exhibit statistically significant improvements in certain periods.