ALPHA RESEARCH & FACTOR MODELLING

The model used to estimate portfolio risk is below -

where X is the portfolio weights (weights assigned to each stock), B is the factor betas or exposure of factors, F is the factor covariance matrix which combined with factor betas gives systematic risk, S is the idiosyncratic variance matrix or specific risk.

The five alpha factors are Momentum 1 Year Factor, Mean Reversion 5 Day Sector Neutral Factor, Mean Reversion 5 Day Sector Neutral Smoothed Factor, Overnight Sentiment Factor, and Overnight Sentiment Smoothed factor.

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