1. Overview Hypothesis: Develop a market-neutral long/short strategy
Motivated by a “pairs trading” strategy which is designed to hedge industry specific risk
Identify a dynamic portfolio strategy which outperforms a general pairs trading strategy through the creation of a “basket” of securities
Industry-specific long and short “baskets” are identified on a monthly basis through a screen of targeted fundamental factors
Identify industry sectors which consistently produce excess returns

2. Overview Methodology:
Identify industries and potential fundamental factors
Screen and alpha test individual factors across industry sectors
Score and combine individual factors
Alpha test combined industry long/short “baskets”
Evaluate which industries produce consistent excess returns
Evaluate trading strategies

3. Optimization
Value Weighted
Equal Weighted

4. Conclusions
Intra-sector excess returns appear to be consistently available
Inconsistent “in-sample” and “out-of-sample” results within certain industry sectors
Additional analysis should lead to effective factors which could consistently produce intra-sector excess returns

5. Next Steps
Develop and evaluate additional factors which isolate industry specific excess returns
Test additional industry sectors and sub-sectors in-sample
Vary factors weights across industries
Evaluate migration of stocks within fractiles
Develop and evaluate sector-specific, and overall, trading strategies as part of an overall hedge fund charter