Exploring the benefits of factor diversification of combination models
This research paper explores the multiple benefits of factor diversification offered by StarMine combination models to show how this can help investors to ride out volatile markets. By providing a global analysis of the benefits associated with a combined model, this research explores how an improvement of top-bottom decile spreads during down market months can be achieved. This research highlights the resilience and benefits of the Combined Alpha Model approach in providing the best results due to its inclusion of Short Interest, Smart Holdings and Earnings Quality, and exemplifies how stock selection models that perform well in both rising and declining markets, can help investors outperform the market over the long term.
Download the report to:
- Understand the benefits of factor diversification through combined StarMine Model performance.
- Learn how combining factors with low or negative historical correlations can generate excess returns and smooth out returns.
- Discover how the Price Momentum and Analyst Revision Model provide a strong counterbalance to value factors in declining markets and can help investors outperform the market over the long term.
"In Emerging Markets Both the StarMine Combined Alpha and the StarMine Value Momentum models had positive top decile excess returns and top-bottom decile spreads in 86% of the down months for the market."
"Inclusion of the Smart Holdings and Earnings Quality components had a positive impact on Combined Alpha outperformance during down market months."
"During the period studied the Combined Alpha Model had positive top decile excess returns versus the equal-weight universe in more than 60% of the down months in the market."
"Of the 75 months since July 2016, 28 had negative overall universe equal-weighted average price changes. During those negative months, StarMine Value Momentum produced positive top decile excess returns vs the overall market 57% of the time."
Employing the factor diversification offered by StarMine combination models can help investors to ride out volatile markets.
Richard Segarra, CFA