Parallels Of Betting & Investing

Two of the most-well-known factors that help explain stock returns are the value effect (where equities with lower prices relative to metrics—such as book value, earnings, cash flow, sales and dividends—tend to outperform the equities with higher prices relative to those metrics), and the momentum effect (where assets that have outperformed in the recent past tend to continue to outperform in the near future).

Academic research has uncovered the fact that combining these two strategies (value and momentum) results in more efficient portfolios (because their correlation is highly negative).

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