Revisiting the Two Sigma Factor Lens

A new blog post from the Venn team outlines the characteristics of the 10 newest factors added to the original Two Sigma Factor Lens.

In 2018 we published a paper titled “Introducing the Two Sigma Factor Lens,” in which we presented the framework for a factor approach to investment analytics. This approach contrasts with the traditional assumption that combining different asset classes within a portfolio is an effective way to maximize risk-adjusted returns. Analyzing a portfolio through a risk factor lens may allow investors to better understand overlapping sources of risk across multiple asset classes and more efficiently manage their portfolios’ overall risk exposures and expected return.

Increasing the lens’s explanatory power

The Two Sigma Factor Lens debuted with a set of eight factors, split across Core Macro and Secondary Macro categories, and that framework formed the foundation of Two Sigma’s Venn platform. In the years since, our researchers have extended the lens to include an additional 10 factors, which we split between two new groupings: Macro Styles and Equity Styles. We believe these new factors could increase the explanatory power of the Factor Lens by covering less common, but still sizable drivers of portfolio risk.

A new article by our colleagues at Venn summarizes the characteristics of these new factors, and how the 18 factors that now comprise the Two Sigma Factor Lens work together. Be sure to check it out here.

Important Notice to Venn Subscribers: This article is not an offer to, or solicitation of, any potential clients for Venn or otherwise for the provision of investment management, advisory or any other services. Nothing in this article or the paper should be considered a representation of how the Two Sigma Factor Lens may be used on Venn or about Venn or the Two Sigma Factor Lens in any respect. Importantly, any use by Venn of the Two Sigma Factor Lens may differ materially from any content, research or methodologies discussed in the article or the paper.

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