The stacking ladder. Sharpe peaks at three. The fourth pays nothing. The fifth subtracts.
Same Nifty 200 universe. Same equal weight. Same monthly rebalance. The only thing that changes row to row is how many factor screens get stacked on top. The return column keeps climbing for a while. The volatility column keeps shrinking for longer. The Sharpe column tops out at three.
Stacking ledger . illustrative 10Y on Nifty 200 equal weight
Construction
CAGR
Vol
Max DD
Sharpe
Value onlycheapest 30 by trailing P/B
11.8pct
17.5pct
-31.2pct
0.62
Momentum onlytop 30 by 12-1 month return
14.2pct
19.5pct
-38.6pct
0.66
Quality onlyROE GT 15 . DE LT 0.5 . CFO over NI GT 0.8
13.1pct
16.0pct
-24.8pct
0.71
Two factorsvalue + momentum
14.8pct
16.5pct
-26.4pct
0.91
Three factorsvalue + momentum + quality
15.2pct
15.5pct
-22.1pct
0.95
Four factors+ size
14.9pct
16.0pct
-23.6pct
0.92
Five factors+ low volatility
14.1pct
15.0pct
-22.8pct
0.88
Sharpe by number of factors . the peak is at three
The second factor did most of the work. The third pays for itself. The fourth and fifth quietly subtract. Adding momentum to value moved the Sharpe from 0.62 to 0.91, a 0.29 jump. Adding quality on top moved it from 0.91 to 0.95, a 0.04 jump. Adding size and low-vol on top moved it from 0.95 to 0.88, a 0.07 drop. The marginal Sharpe gain ran out at three. Turnover, intersection cost, and crowding tax kept climbing.
Numbers illustrative. Backtest engine same Nifty 200 universe across all rows, equal weight, monthly rebalance, 0.15 pct round-trip cost per leg, no slippage assumed beyond cost. Factor definitions match the four single-factor posts shipped this month (8, 11, 15, 19 May). 10Y window through Apr 2026. Past performance . backtest only . not a guarantee.