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Diversification over factors

Exposing the portfolio to a variety of factors improves diversification. The aim of diversifying according to underlying factors is to make the portfolio more robust.

Diversification using the factor approach differs from the traditional method of distribution over asset classes such as equities, bonds and private equity, commodities, hedge funds and regions. The latter approach doesn’t provide insight into the underlying factors that determine the return-risk ratio of a portfolio.

Factor investing means that we divide up a portfolio into factors with significant expected risk and/or return differentials. Accordingly, the assets in a factor-based portfolio are distributed over premiums such as low volatility, size, value and momentum.

Quantitative investing
Quantitative investing

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Quant solutions must look beyond the most conventional factors
Quant solutions must look beyond the most conventional factors
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Following more than two years of quant strategies generally underperforming sharply, investors are questioning whether quantitative investing is still viable.
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Factor investing – going beyond Fama and French
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There is more to factor investing than the standard academic factors, says Head of Quant Research David Blitz.
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