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India Equity Research Reports, IPO and Stock News
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Introduction
Factor model
Over the past few years, Indian capital markets have taken giant strides to enter the league
of global profitable investment avenues. This growth has attracted investors with diverse
investment strategies in quest for better returns. Along with this bustling growth, investment
strategies too are undergoing a paradigm shift. The conventional long only strategies are
gradually being sidelined by quantitative models with emphasis on long-short portfolios. Such
a drift is justified on the back of volatile nature of equity markets globally.
The Edelweiss Style Analysis (ESA) gives you cutting-edge research and an in-depth analysis
on ‘what’s hot’ in the current scenario. The analysis revolves round various factors driving the
market in different scenarios and tries to capture factors driving the current momentum. We
believe that markets follow a typical investment style or pattern at different intervals, which
is mirrored by certain factors. The analysis provides investors with an understanding of the
factors that are currently working in prevailing market conditions to enhance portfolio
performance. The analysis outlines a host of long–short portfolios drawn on the basis of these
factors.
The efficacy of the Factor Model is gauged by the performance of portfolios from various
dimensions:
Long Portfolio
Short Portfolio
Long–Short Portfolio
Long–Short Nifty
Nifty
Style analysis
Style analysis is basically a framework for measuring the efficacy of a select set of
fundamental and technical factors blended with certain quantitative disciplines. It tries to
encapsulate traditional investment styles of value and growth buying. Style analysis aims to
capture the factor momentum under prevailing market conditions to maximize the magnitude
and stability of expected incremental performance. However, due to changing market
dynamics, factors are bound to change from time to time. A specific factor riding the
momentum may change over a period of time.
Various factors
Style analysis makes use of a host of factors that aid momentum in a specific stock. P/E, EPS,
revenue, book value, EBITDA, enterprise value, P/BV, RoE, are a few factors used for this
analysis. The above given factors often serve as an efficient evaluation tool. For simplicity
and better understanding, the factors are placed into different baskets as follows:
Momentum Factors
Growth Factors
Value Factors
Quality Factors
Why Multi Factor Model
Edelweiss multi factor model aims to diagnose right factor momentum to out perform the
benchmark by earning the alpha gains. Active investors like hedge funds, institutions, and
portfolio managers have been known to effectively profit from similar strategies. Considering
the volatility in equity markets, such an alternative investment can be effective in diversifying
the allocations and maximizing returns. Investment styles may be long portfolio, long
portfolio–short Nifty, or long–short portfolio.
Market in a bull run may augur well for a long portfolio style of investment, while in an
unstable market a long portfolio and short Nifty would be the preferred investment strategy.
In case of an uncertain market with negative bias, the long–short portfolio style of
investment is preferable. These strategies seem to be generating good returns on a
consistent basis and thus can be a preferred one during volatility where negative cues clearly
seem to outplay positive ones.
Edelweiss Style Analysis (ESA)
Introduction
Under dynamic market conditions, generation of Alpha returns is often the greatest challenge
confronting fund managers, which has underscored the increased importance of quantitative
stock picking. At the same time, for an active portfolio manager, a detailed understanding of
factor styles under changing market regimes is becoming increasingly important. Through
this research, we analyze the efficacy of fundamental and technical factors for stock selection
to complement the skill set of a portfolio manager.
Model description
The ability to predict the relative performance of various styles and successfully
implementing a strategy based on these predictions should have a positive effect on overall
investment returns. Indeed, as we have seen in our monitoring of investment performance
based on these styles over the years, being in appropriate groups (e.g., value, growth,
market cap) can make an enormous difference to investment success. This study examines
the efficacy of over 20 superior factors and back-test the each factor portfolio returns since
January 2003.
Single factor portfolio construction methodology: To construct long-short factor
portfolios, we rank stocks within the coverage universe by each factor every month, and
group them into five quintiles (quintile 1 contains the highest ranked stocks). For each factor,
we then calculate the one month subsequent performance of these five equally weighted
quintile portfolios, and compute the performance difference between the highest and lowest
quintiles (Q1–Q5), to arrive at a factor return.
Factor groups: Over 20 factors derived from fundamental and technical data base were
grouped into four categories—growth, momentum, value, and quality factors. (Explained in
detail later).
Back-test results for each static factor portfolio: We report the cumulative return of
portfolios based on single factor since January 2003.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Introduction
Factor model
Over the past few years, Indian capital markets have taken giant strides to enter the league
of global profitable investment avenues. This growth has attracted investors with diverse
investment strategies in quest for better returns. Along with this bustling growth, investment
strategies too are undergoing a paradigm shift. The conventional long only strategies are
gradually being sidelined by quantitative models with emphasis on long-short portfolios. Such
a drift is justified on the back of volatile nature of equity markets globally.
The Edelweiss Style Analysis (ESA) gives you cutting-edge research and an in-depth analysis
on ‘what’s hot’ in the current scenario. The analysis revolves round various factors driving the
market in different scenarios and tries to capture factors driving the current momentum. We
believe that markets follow a typical investment style or pattern at different intervals, which
is mirrored by certain factors. The analysis provides investors with an understanding of the
factors that are currently working in prevailing market conditions to enhance portfolio
performance. The analysis outlines a host of long–short portfolios drawn on the basis of these
factors.
The efficacy of the Factor Model is gauged by the performance of portfolios from various
dimensions:
Long Portfolio
Short Portfolio
Long–Short Portfolio
Long–Short Nifty
Nifty
Style analysis
Style analysis is basically a framework for measuring the efficacy of a select set of
fundamental and technical factors blended with certain quantitative disciplines. It tries to
encapsulate traditional investment styles of value and growth buying. Style analysis aims to
capture the factor momentum under prevailing market conditions to maximize the magnitude
and stability of expected incremental performance. However, due to changing market
dynamics, factors are bound to change from time to time. A specific factor riding the
momentum may change over a period of time.
Various factors
Style analysis makes use of a host of factors that aid momentum in a specific stock. P/E, EPS,
revenue, book value, EBITDA, enterprise value, P/BV, RoE, are a few factors used for this
analysis. The above given factors often serve as an efficient evaluation tool. For simplicity
and better understanding, the factors are placed into different baskets as follows:
Momentum Factors
Growth Factors
Value Factors
Quality Factors
Why Multi Factor Model
Edelweiss multi factor model aims to diagnose right factor momentum to out perform the
benchmark by earning the alpha gains. Active investors like hedge funds, institutions, and
portfolio managers have been known to effectively profit from similar strategies. Considering
the volatility in equity markets, such an alternative investment can be effective in diversifying
the allocations and maximizing returns. Investment styles may be long portfolio, long
portfolio–short Nifty, or long–short portfolio.
Market in a bull run may augur well for a long portfolio style of investment, while in an
unstable market a long portfolio and short Nifty would be the preferred investment strategy.
In case of an uncertain market with negative bias, the long–short portfolio style of
investment is preferable. These strategies seem to be generating good returns on a
consistent basis and thus can be a preferred one during volatility where negative cues clearly
seem to outplay positive ones.
Edelweiss Style Analysis (ESA)
Introduction
Under dynamic market conditions, generation of Alpha returns is often the greatest challenge
confronting fund managers, which has underscored the increased importance of quantitative
stock picking. At the same time, for an active portfolio manager, a detailed understanding of
factor styles under changing market regimes is becoming increasingly important. Through
this research, we analyze the efficacy of fundamental and technical factors for stock selection
to complement the skill set of a portfolio manager.
Model description
The ability to predict the relative performance of various styles and successfully
implementing a strategy based on these predictions should have a positive effect on overall
investment returns. Indeed, as we have seen in our monitoring of investment performance
based on these styles over the years, being in appropriate groups (e.g., value, growth,
market cap) can make an enormous difference to investment success. This study examines
the efficacy of over 20 superior factors and back-test the each factor portfolio returns since
January 2003.
Single factor portfolio construction methodology: To construct long-short factor
portfolios, we rank stocks within the coverage universe by each factor every month, and
group them into five quintiles (quintile 1 contains the highest ranked stocks). For each factor,
we then calculate the one month subsequent performance of these five equally weighted
quintile portfolios, and compute the performance difference between the highest and lowest
quintiles (Q1–Q5), to arrive at a factor return.
Factor groups: Over 20 factors derived from fundamental and technical data base were
grouped into four categories—growth, momentum, value, and quality factors. (Explained in
detail later).
Back-test results for each static factor portfolio: We report the cumulative return of
portfolios based on single factor since January 2003.
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