Analysis of quantitative investment strategies - value and momentum synergies: empirical insights into risk-adjusted returns in the 21st century

Abstract

The purpose of this study is to analyze if synergies between Value and Momentum continue to display better risk-adjusted returns in the dynamic and volatile 21st century financial markets. This research follows the methodology of signal and portfolio construction conducted by Asness (2013). The study concludes that for the stocks listed on the NASDAQ and NYSE, it is still possible to obtain better risk-adjusted returns with a 50/50 allocation between Value and Momentum in Long-Short Portfolios, as this combination takes advantage of their strengths and diminishes their pitfalls. Furthermore, this strategy showcases a specific layer of resilience regarding downside risk. The group paper aims to effectively put together 5 distinct individual strategies, Tax Surprise, Age ESG + Low-Volatility, Value + Momentum, and Sales into the most optimal portfolio applying four key strategies: the Equally Weighted Portfolio, Minimum Volatility Portfolio, Maximum Sharpe Ratio Portfolio, and Tangency Portfolio. The Maximum Sharpe Ratio strategy stands out with a remarkable risk-adjusted return and consistent positive alphas surpassing every benchmark portfolio particularly well-suited for investors who prioritize in optimizing the balance between risk and return.