Factor Investing in Trading Strategies
By Daniel Chau
Founder, NeuroBacktest
Use factors like value, momentum, quality, and low volatility to build systematic trading edges.
Factor investing turns academic research into systematic portfolios. Instead of picking individual stocks, you harvest persistent sources of return.
Popular Factors
Momentum buys recent winners. Value buys cheap assets. Quality favors strong balance sheets. Low volatility owns the least risky stocks. Each factor behaves differently across cycles.
Combining Factors
Multi-factor portfolios blend several signals to reduce dependency on any single anomaly. Diversification across factors often smooths the equity curve.
Backtest Considerations
Factor returns can decay after publication. Use out-of-sample data and walk-forward analysis to make sure a factor still has predictive power.
Frequently Asked Questions
What is a factor in investing?▼
A factor is a persistent characteristic that explains returns, such as value, momentum, quality, or low volatility.
Which factors are most popular?▼
Momentum, value, quality, low volatility, and size are the most widely used factors.
Can factors stop working?▼
Yes. Factors can become crowded, decay, or perform poorly for long periods. Diversification across factors helps.