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I am hedging a long-short equity portfolio for statistical factors, and finding an improvement in sharpe but not surprisingly an erosion of portfolio alpha (ex ante and ex post). No one factor is killing the alpha.

Is there a method for mitigating this effect, e.g. forcing statistical factors to be orthogonal to alpha, or otherwise adjust the hedge to minimize alpha impact ?

Any pointers, papers, references would be appreciated. Thanks.

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    $\begingroup$ Do you define alpha against the same factors you are hedging? $\endgroup$
    – fes
    Commented Aug 2, 2021 at 17:46
  • $\begingroup$ This question (and the reference mentioned in the question) may be related to your question quant.stackexchange.com/questions/61217/… $\endgroup$
    – nbbo2
    Commented Aug 2, 2021 at 18:44

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