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Principles of Quantitative Equity Investing: A Complete Guide to Creating, Evaluating, and Implementing Trading Strategies by Sugata Ray

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9. Weights—Equal or Otherwise

Weighting refers to the allocation of capital between stocks that initially pass through a screen. This book has mainly dealt with equal weighting. This means the capital is equally divided between all the names that pass through the screen. This is one of the most common weighting systems in practice because of its simplicity and because of its performance characteristics. Equities Lab currently only supports equal weighting during rebalances, so the following discussion on weighting is unfortunately not accompanied by empirical analysis from Equities Lab. However, this chapter does discuss several other weighting schemes and the rationale for using them. The ability to support custom weighting schemes is on the ...

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