Momentum is an equity style factor that is built using individual stocks - so it could be long Apple and short Alphabet, as an example. The first, most obvious difference between the two is the asset classes used to construct each factor. How are these two factors different, and why does it matter?ĭifference #1: The Underlying Asset Classes In fact, the two have a positive long-term correlation of 0.3. The latter sounds a lot like the Momentum equity style factor, which already exists in the Two Sigma Factor Lens. Trend Following is meant to capture momentum, using the trailing returns of macro asset classes. The first two factors are meant to capture an investment’s or portfolio’s exposure to carry strategies: i.e., holding higher-yielding bonds or currencies funded by their lower-yielding counterparts. At the end of 2019, Venn added three new macro style factors to the Two Sigma Factor Lens: Fixed Income Carry, Foreign Exchange Carry, and Trend Following.
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