{"id":1009,"date":"2025-05-28T20:30:00","date_gmt":"2025-05-28T20:30:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/factor-strategy-idiosyncratic-volatility\/"},"modified":"2026-09-10T10:03:38","modified_gmt":"2026-09-10T10:03:38","slug":"factor-strategy-idiosyncratic-volatility","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/factor-strategy-idiosyncratic-volatility\/","title":{"rendered":"Factor Strategy \u2013 Idiosyncratic Volatility | Part 2\u00a0"},"content":{"rendered":"
\"\"<\/figure>\n

Introduction\u00a0<\/strong><\/h2>\n

Building on the statistical foundation presented in Part 1<\/a>,<\/strong> this article explores how Idiosyncratic Volatility (IVOL) can be effectively applied in investment strategy design. We present two categories of approaches: a single-factor sorting model and a set of filter-enhanced momentum strategies. Through robust backtesting across two decades of Taiwan stock market data, we demonstrate how IVOL can improve risk-adjusted performance when used as a portfolio filter\u2014especially when combined with momentum or dividend-based signals.\u00a0<\/p>\n

\ud83d\udc49 Part 1\uff1aFactor Research\uff0dIdiosyncratic Volatility<\/a><\/p><\/blockquote>\n

Strategy Construction & Backtesting\u00a0\u00a0<\/strong><\/h2>\n

Building on the earlier analysis, we now evaluate IVOL\u2019s practical investment applications. Two categories of strategies are tested:\u00a0<\/p>\n

    \n
  1. Filter-Enhanced Momentum Strategies<\/strong> \u2013 incorporating IVOL and\/or DP as pre-filters<\/strong> to refine the MOM52WH signal.\u00a0<\/li>\n
  2. Single-Factor Sorting Strategies<\/strong> \u2013 directly using IVOL, dividend yield (DP), or momentum (MOM52WH) as the basis for monthly stock selection;\u00a0<\/li>\n<\/ol>\n

    Backtests are conducted over Jan 2005 \u2013 Mar 2025<\/strong>, rebalanced monthly, with an initial capital of NT$10 million allocated equally<\/strong> across 50 selected stocks.\u00a0<\/p>\n

    \"\"<\/a><\/figure>\n

    Single-Factor Sorting Strategies<\/strong>\u00a0<\/h2>\n

    Each month, stocks are ranked by one of the following factors, and the top 50<\/strong> are selected:\u00a0<\/p>\n