In equity portfolio construction, can anyone tell me what is the difference between “factor neutral” and “factor diversified”? How does it affect active share and active risk?
In the book, it said factor neutral means no active bets while factor diversified means balance exposure of risk factors. To me, it seems same.
Also, the book states “active shares low if diversified” for “factor neutral”. why? if I use different stocks from benchmark to form the “factor neutral portfolio”, the active shares should be high.
Pls advise! Thanks a lot!