Most investors classify investment factors into two broad categories, namely macroeconomic and style factors. As its name suggests, macroeconomic factors illustrate broad macroeconomic and financial elements of risk across several asset classes such as equities, fixed income, and gold. Common macroeconomic factors include interest rates, real GDP/economic growth, inflation, money supply and liquidity. Macroeconomic factors are typically used to determine asset allocation between different asset classes.

On the other hand, style factors are those specific to an asset class and used to select securities within the asset class. The most prevalent style factors for equities include size, quality, volatility, value, and momentum. We explore these in detail in the coming sections.