Why Equal-Weight Dividend Yield and Price-to-Sales Signals Can Underperform
Summary
The note examines an attempted A-share stock-selection strategy that combined dividend yield and price-to-sales signals with equal scoring weights while retaining both screens. The author reports that the combined strategy backtested substantially worse than either signal used alone, then outlines possible explanations rather than presenting a tested remedy.
The proposed explanations include overlapping information between valuation signals, conflicts between high-dividend and low-price-to-sales stocks, and dilution of the extreme readings that may drive a single-factor strategy. It also argues that dividend and price-to-sales premia may favor different stock types and market periods, so a fixed blend can miss each signal’s stronger regimes. These are hypotheses, not demonstrated causal findings: the note provides no performance figures, sample design, robustness checks, or comparison of alternative weighting methods. It offers a useful caution that factor combinations require empirical testing and may need to account for signal correlation and changing market conditions.
Key ideas
- Equal-weighting dividend yield and price-to-sales signals reportedly underperformed either signal on its own in the author's backtest.
- Correlated factors may add little new information when combined.
- Conflicting signals can favor middling stocks over the strongest candidates under either standalone factor.
- Dividend and price-to-sales effects may perform in different market regimes.
- The explanations are hypotheses because the note gives no detailed test design or supporting statistics.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.