Evaluate the performance of Large Capitalized Multi-Factor Portfolio: Evidence from the United States of America

Abstract

The study sought to evaluate the performance of the Large Capitalized Multi-Factor Portfolio, using the United States of America as the case study. The study specifically concentrated on constructing a portfolio from the S&P 500 using a multi-factor model that integrates value and momentum, and calculates the portfolio's historical risk-return profile, including its annualized return, volatility, and Sharpe ratio over 5 years. The study employed the use of a multi-factor asset pricing approach and contemporary portfolio theory to quantitatively analyse the portfolio performance. It employed the use of the Sharpe ratio to calculate excess return per unit of risk, and compare the performance against an equal-weighted benchmark, as well as the risk-return relationship. Data for the study were obtained from the Stocks.csv file, which covered the period from July 6, 2020, to July 7, 2025, and was used for the Python analysis. For each of the twelve chosen securities, there were 3,144 observations in the dataset that included weekly prices and returns. To guarantee consistency across time and tickers, the data was prepared and cleaned. A continuous time series was created for each stock by recalculating missing return values using the percentage change in weekly closing prices. The Sharpe ratio was calculated using a 4 percent annual risk-free rate, and annualised return and volatility were computed by scaling weekly statistics using a 52-week factor. As a neutral gauge of market-level performance, the benchmark consisted of an equal-weighted portfolio of the same twelve securities. The study revealed that the investment structure is well-balanced and diversified. It was found that the portfolio consistently has weekly performance patterns. This shows that the portfolio's returns are both positive and have minimal volatility, both of which are necessary for preserving a reasonable degree of risk exposure. Based on the findings, it is concluded that the portfolio had a Sharpe ratio of 1.12 and an annualised return of roughly 31.66% with a volatility of 24.72%. By outperforming an equal-weighted benchmark in both absolute and risk-adjusted performance, these metrics demonstrate the portfolio's capacity to produce significant returns while skillfully managing risk. The importance of diversification, which was essential in reducing unsystematic risk and improving overall portfolio stability, is further supported by the covariance matrix analysis. The conclusion is further drawn that the value-momentum combination's cumulative growth trajectory, which shows consistent superior performance over time, validates the theoretical framework supporting it as a feasible investment strategy. This steady upward trend indicates the strategy's potential for long-term profitability in addition to highlighting its efficacy.