combo bab x low volatility
What it checks
Two independent ways to measure the leverage-constraint anomaly (low beta and low vol) - combining them is 21% sharper than either alone.
Mechanism
Frazzini-Pedersen 2014 BAB (long low-beta, short high-beta) and Baker-Bradley-Wurgler 2011 low-vol-anomaly attack the same underlying mispricing - leverage-constrained investors over-bidding high-beta/high-vol names - from DIFFERENT signals (beta vs realized vol). The miner finds the correlation between them is only 4% on the live panel (n=14,427 cells, widest coverage of any top pair), so the z_sum combines two independent measurements of the same edge, boosting per-trade IC by ~21%.
Signal rule
position = clip(1.5 * (z(inverse_beta_score) + z(low_vol_score)), -1, +1)
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
spy_pricesWorker data table — see services/worker schema.
Expected edge
- Paper alpha
- lift=1.215x over either signal alone
- Paper window
- 10-day forward
Combined IC=-0.152 vs -0.12/-0.10 for either alone - lift 1.21x. Highest-coverage pair in the top 30.
Related families
babQualityBetting Against Beta (Frazzini-Pedersen 2014): for a single stock, scale exposure inversely to its rolling beta vs SPY. Lower-beta moments get a bigger position, high-beta moments get reduced — the stock-level analog of the BAB factor. Long-only with a positive-trend gate (only when close > close 252d ago) to avoid leveraging into downtrends.
low volatility anomalyRisk-PremiumLow-vol stocks earn higher risk-adjusted returns; benchmark-relative institutional incentives are the channel.
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