I am a new aspiring quant who is trying to build a fundamental factor algorithm to rank stocks for a basic long/short strategy, so sorry for the likely very basic question. Nevertheless...
Why do you need to regress fundamental factors you would like to test against portfolio returns constructed of equities of the highest and lowest extremes of those values in your trading universe. Why not just regress the factors against the returns of your whole trading universe?
Is this just because it is too computationally expensive or does the construction of those groups of equities serve another function?