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Diversification Across Characteristics

15 Pages Posted: 11 Mar 2010  

Erik Hjalmarsson

University of Gothenburg - Centre for Finance

Date Written: December 2009


I study long-short portfolio strategies formed on seven different stock characteristics representing various measures of past returns, value, and size. Each individual characteristic results in a profitable portfolio strategy, but these single-characteristic strategies are all dominated by a diversified strategy that places equal weight on each of the single-characteristic strategies. The benefits of diversifying across characteristic-based long-short strategies are substantial and can be attributed to the mostly low, and sometimes substantially negative, correlation between the returns on the single-characteristic strategies.

Keywords: Diversification, portfolio choice, stock characteristics

JEL Classification: G11, G12

Suggested Citation

Hjalmarsson, Erik, Diversification Across Characteristics (December 2009). FRB International Finance Discussion Paper No. 986. Available at SSRN: or

Erik Hjalmarsson (Contact Author)

University of Gothenburg - Centre for Finance ( email )

Box 640
Gothenburg, 403 50

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