The blend keeps the average return and sheds half the risk.
Value and momentum lean opposite by design. One buys what has fallen, the other buys what has climbed, so their weak spells rarely land in the same year. Put them together and the swings partly cancel out.
| Factor |
Return/yr |
Volatility |
Sharpe |
| Value | 4.0 pct | 14.0 pct | 0.29 |
| Momentum | 8.0 pct | 16.0 pct | 0.50 |
| 50/50 blend | 6.0 pct | 7.6 pct | 0.79 |
The blend return is simply the average of the two, 6.0. The volatility is not. It drops to 7.6, about half of either factor on its own, because the two return streams carry a correlation near -0.50. Averaged returns, halved risk. That gap is the whole reason the blend Sharpe clears both.