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Stock selection has evolved significantly over the years. Investors once relied on single-factor models, such as P/E ratios or momentum indicators, to make trading decisions. However, these approaches often fail to account for market complexities. Today, sophisticated investors use multi-factor models, which incorporate various financial, technical, and macroeconomic factors to improve decision-making.
Multi-factor investing helps mitigate risk, optimize returns, and create more resilient portfolios. By combining different factors, investors can balance strengths and weaknesses, reducing overreliance on a single metric. In this article, we’ll explore the principles behind multi-factor models, key factors used, how to build them, and their practical applications.
To learn more about stocks available for trading in Singapore, you can visit Saxo.
Understanding Multi-Factor Models
Multi-factor models are quantitative frameworks that use multiple variables to assess stock performance and risk. These models help investors filter stocks based on predefined criteria, leading to a more systematic and …