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Fundamental Analysis Tools for Fundamental Analysis. What Is Factor Investing? Key Takeaways Factor investing utilizes multiple factors, including macroeconomic as well as fundamental and statistical, are used to analyze and explain asset prices and build an investment strategy. Factors that have been identified by investors include: growth vs. Smart beta is a common application of a factor investing strategy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
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Reading Into the Small Firm Effect The small firm effect is a theory that holds that smaller firms, or those companies with a small market capitalization, outperform larger companies. Partner Links.
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Start your free trial. Note, here we multiply the lookback with 21, to convert from months to days. The main strategy function we scheduled is very simple:. We sort this array remember this array is indexed by the assets by the factor column we want momentum in this case.
We pick up the top p percentile of stocks to buy storing it in context. This is the classic cross-sectional momentum strategy. Note, by design, we always have same number of stocks to buy and sell, giving us a market neutral portfolio. Finally we trade the securities in our long and short list in the rebalance function:. This function defines a base weight.
Then it first check if we have open positions in any stocks that are NOT in our current long or short lists and close them out. We do that by querying the special variable context. Then it loops through our long and short lists and place new orders with the target weight with sign. Now that our strategy is done, let's hit the quick run button, selecting NSE daily as our dataset and date range as 1 st May to 25 th July and capital at , The result looks like below:. Any factor based strategy can be implemented using the above guidelines. This function can be anything, as long as it returns a single numerical value for each stocks.
For more examples of such strategies please visit our demo page on Github. For a list of factor based strategies in equity markets see here. See here for an introduction to the Capital Asset Pricing Model. See here for an introduction to the three factor model.