We used the generally accepted assumption of high quality companies:
The quality factor considers three sub factor groups: profit, growth, and safety:
We applied the aforementioned quality metrics to a universe of the largest 500 US equities by market capitalization and ranked each stock on its overall quality. We then divided the universe into 10 quantiles of stocks, with the top quantile (Q_10) representing the highest quality stocks and the bottom quantile (Q_1) representing the lowest quality stocks.
For a long strategy, the top quantiles (Q_8 - Q_10) are the most useful, while for a short strategy, the bottom quantiles (Q_1-Q_3) are the most useful.
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