Thematic Research: Introducing the Two Sigma Factor Lens

Posted on June 4, 2018

Authors: Geoff Duncombe (Two Sigma), Bradley Kay (Two Sigma)

Abstract: Asset allocators have taken an increasing interest in risk factors for the analysis of everything from their overall portfolios to their individual managers. Most of the literature on the topic discusses why allocators should apply a risk factor approach. This paper instead focuses on how to construct a functional lens suiting institutional investors’ analytical needs. Specifically, we present a framework for constructing a parsimonious set of actionable risk factors that individually describe independent risks common across many asset class returns yet collectively explain much of the cross-sectional and time-series risk in typical institutional investor portfolios.

Download PDF — 594.79 KB

This article is not an endorsement by Two Sigma of the papers discussed, their viewpoints or the companies discussed. The views expressed above reflect those of the authors and are not necessarily the views of Two Sigma Investments, LP or any of its affiliates (collectively, “Two Sigma”). The information presented above is only for informational and educational purposes and is not an offer to sell or the solicitation of an offer to buy any securities or other instruments. Additionally, the above information is not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice. Two Sigma makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. Click here for other important disclaimers and disclosures.

Related Articles