From the book "Finding Alpha", written by a popular quant fund WorldQuant, explains many techniques about quantitative investing but intentionally omits many of the caveats and applications of those techniques.
In the book, they introduce a concept of 'factor grouping', which is as simple as grouping stocks by their sectors/industry.
Sometimes a stock's return is demeaned by the group mean or ranked within the group.
Magically, this technique yields very good results and make an unprofitable 5-day reversion strategy to something that actually generates profit.
The book says "It works", but doesn't explain why. Why does it work? What's the intuition behind all the 'grouping' techniques?