Quantitative Strategies for achieving alpha

Richard Tortoriello

Quantitative Strategies In this 450 pages book, Tortoriello provides backtesting results for more than 100 quantitative strategies.

The methodology includes:
  • Compustat Point in time database.
  • 20 years timeframe from 1987 to 2006.
  • 42 one factor model.
  • 70 two factors models.
  • Many three factors model.
  • Holding period of 1 year for every backest.

Portfolios are constructed as follows:
  • 1 factor model: quintile analysis (Top 20%, next 20%..., bottom 20%). Portfolio size of 450-500 stocks.


  • 2 factors model: 1st take Top 20% with 1st factor, then divide again in quintile with 2nd factor. Portfolio size of 60-80 stocks.


  • 3 factors model: same principle as 2 factors model but with three factors resulting in even smaller portfolio size. Portfolio size of 12-20 stocks
    • .

The factors are classified in 7 categories. The book starts by providing results for strategies in each category:
  1. Profitability (Return on Invested Capital, Return On Equity, Return on Assets...)
  2. Valuation (Price/Cash Flow, Price/Book Value, Price/Sales, Price/Earnings, Dividend Yield...)
  3. Cash flow (Free Cash Flow to Income, Free Cash Flow to Capital...)
  4. Growth (Free Cash Flow per Share Growth, EPS Growth...)
  5. Capital allocation (Share repurchase, share reduction, reduction in debt...)
  6. Price momentum (Relative Strength, 52 week high/low, RSI index...)
  7. Red Flags (leverage, CAPEX, depreciation...)

For each strategy, results are presented for each quintile and include CAGR, Standard deviation, Beta, Alpha, Sharpe ratio, %of 1 year outperforming, %of rolling 3 years outperforming...

Results are also presented on a per sector basis to verify robustness at the sector level.


Tortoriello then proceeds with analysis of combination of factors from different categories (e.g. Profitability and Valuation, Valuation and Price Momentum, etc...)

This analysis concludes with tips on how to use the findings to build investment strategies.

As opposed to "What Work on Wall Street", Tortoriello provides more explanations as to why a factor is successful.


The book ends with 21 practical stock screens that can be used with stock screeners. Backtest results are provided for each screen.

All the screens use 2 or 3 factors as they are the ones to provide reasonable portfolio sizes (see above) for individual investors.

Unfortunately, most screens would require a very good screener such as AAII Stock Investor Pro (227$/year) or Morningstar Premium Screener (159$/year). In fact, many variables used (EBITDA, Free Cash Flow, Enterprise Value, Invested Capital...) are not available with free stock screeners.


Highly recommended if you're an intermediate to advanced investor as many of the factors used require a relatively good understanding of Income statements, Cash Flow statements and balance sheets.

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