Strategies · Library · Stocks
§3.6Factor
Multifactor portfolio
Combine several stock factors such as value and momentum, which often move against each other, so the blend is steadier than either. Either split money between single-factor portfolios or average each stock's ranks across the factors.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Stocks
- Held for
- Months
- Data
- ARCANE has part of the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Per-stock ranks on each chosen factor, averaged or used to split the top and bottom groups.
- Entry and exit
- Rebalance on the slowest factor's schedule; hold depends on the factors mixed.
- Sizing
- Equal split across factors, or split by inverse factor volatility; stocks within sides weighted equally.
How it fails
- Factors can fail together
- Weights between factors are a judgment call
- Needs fundamentals for most factors
- Shorting for the neutral form
Data it needs
- daily prices
- fundamental factor data
Price-based factors (momentum, volatility) are available; value and quality need fundamentals ARCANE lacks.
How ARCANE uses it
Alpha could blend a momentum rank and a low-volatility rank when asked which names look strongest on more than one lens.
Builds as a long-only proxy. A momentum filter on a small basket plus a calm-market gate approximates the blend; fundamental factors and shorts are dropped.
Filed under the factor card
Own companies that are small, cheap, profitable and invest conservatively, against their opposites, and rebalance once a year.
A paper plan from this card holds 63 to 365 days, stops at 2× the expected move and uses at most 75% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §3.6, p. 44 of the SSRN version. Described in our words. Factor is ARCANE’s filing, not the book’s.