Factor Investing: Concepts & Strategies | An Introduction | Quantra Course

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Meet John. He’s been trading in the same manner as most of us do. He picks out individual stocks based on some tips or hunches. But waiting for a tip or an event to occur just to know which stock he should trade-in is not working out for him anymore.

Plus, his current approach is not generating great returns. On the other hand, his friend Mary has been following an approach that has been working out quite well for her. Somehow she always knows how to identify stocks, it's like she has a compass that helps her navigate the market! Mary, can you tell me a little bit about your trading approach? Well, John, I don’t believe in trading in random stocks. So I learned about the factor investing approach and started picking out stocks based on factors. Factors? What are the factors? You can think of factors as the drivers of excess returns. Factors impact a stock's journey in the market. They include everything from a company's financial health to market trends and even investor sentiment. That’s quite a broad concept. Can you give me an example of something more specific? Sure! Consider the momentum factor. It’s been known that stocks that have momentum tend to follow their recent performance. So if a stock has been trending upward in the recent past, chances are that it’ll trend upward in the near future too. Similarly, there are many other factors in play, and traders identify stocks based on the factor that they want to follow. This means that if I follow the factor-based approach I don't need to select stocks based on hunches anymore, I can simply use factors as a guiding tool to identify stocks! But how do I know that the factors performing well in the past will also perform well in the future? You’re right we can never be 100% sure. But studies have shown that factors are persistent in the long term. So the probability of factors persisting beyond short-term fluctuations and lasting for longer periods of time is higher. this course takes you through some of the commonly known factors In addition to the well-studied known factors, you will also learn how to discover unknown factors. What if I want to trade commodities? Can I still follow this approach? Absolutely! Factors are everywhere, not just stocks. So no matter which market you’re trading in, be it commodities, currencies, or indices, you can use this approach. I’ve understood factors, but how can I know when to enter or exit a factor? By understanding why these factors exist and how they influence the price of a security you can create the entry and exit rules. In addition to the reasons for the existence of factors, in this course, you will also learn about some practical scenarios and challenges of individual factors and ways to deal with them. What else can I learn from the course? This course explains the entire implementation process starting from learning all about a factor, identifying stocks by ranking them, rebalancing your portfolio, analysing performance metrics like Sharpe ratio, CAGR, and cumulative returns. And finally live trading the strategy with the help of templates provided in the course. We do this for each of the 4 factors mentioned earlier. After completing this course you will learn how to implement this entire process using Python. So how can I improve the performance of my portfolio? You can do this by combining multiple factors and creating a diversified portfolio. This way you can bring down the risk and improve the overall performance of your portfolio in this course, you will learn the whole process of combining factors which involves identifying relevant factors, assigning weights and scores to these factors, and finally ranking them. The main focus of the course is to not just take you through the concepts of multi-factor strategies but also to help you gain the ability to select a factor of your choice and implement strategies taught in this course all by yourself. After completing this course you will also be able to blend multiple factors to create portfolios with  improved risk-adjusted returns.

Quantra is an online education portal that specializes in Algorithmic and Quantitative trading. Quantra offers various bite-sized, self-paced and interactive courses that are perfect for busy professionals, seeking implementable knowledge in this domain.

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