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$6.00
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1 mg
Description
Factor investing is a framework that explains what contributes to a stock's returns within a given period. It looks at common traits, or factors, that tend to drive returns across securities. What cannot be explained by factors is attributed to idiosyncratic risk, or the unique performance of a specific stock picked by a manager. Factor models help hedge funds separate a PM's alpha generation from systematic exposure. They provide a framework for understanding what drives returns across portfolios and help identify whether outperformance reflects genuine alpha or simply unhedged risk premia. At the platform level, they are a core component of risk management and capital allocation, by ensuring that pods don't take on significant correlated factor bets.
