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Two Sigma Factor Lens Deep Dive
Two Sigma Factor Selection Methodology
Two Sigma Factor Selection Methodology
Anna German avatar
Written by Anna German
Updated over a week ago

Rev. Date May 30, 2019

Venn analysis employs a factor selection methodology to reduce the full set of factors in the Two Sigma Factor Lens to those it determines to be most relevant to each portfolio or investment.

The Two Sigma technique uses a Lasso regression to select a parsimonious set of factors to explain the returns of each portfolio or investment. The Lasso regression may select only a subset of all available factors to guard against false positives.ย 

The process of selecting more relevant factors can help:

  • Improve the interpretation of the inherent risk drivers by selecting factors determined to be most relevant and intuitive

  • Enhance the accuracy of the analysis by discarding the noise of irrelevant factors

Please see a longer FAQ on our factor lens here.

This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.

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