How Best to Combine Value and Momentum?

Should investors seeking to exploit both value and momentum factors in U.S. stocks prefer two separate portfolios or one that integrates stock selection? In his February 2026 paper entitled "Don't Mix What Should Be Separated: Why Combining Value and Momentum Signals Destroys Alpha", Carlos Morales compares:

1. A combined ranking method, integrating value and momentum signals for each stock into one composite score and forming a single hedge portfolio with 100 long and 100 short equal-weighted positions.
2. Two separate and independent value and momentum long-short hedge portfolios, each with of 100 long and 100 short equal-weighted positions.

His value ranking system is an equal-weighted, industry-normalized composite of price-to-book value, free cash flow yield, sales-to-enterprise value and earnings yield. His momentum ranking system is an equal-weighted combination of return from 12 months ago to one month ago and 6 months ago to one month ago. As in many academic studies, he ignores trading frictions. For Sharpe ratio calculations, he assumes a constant 1.8% risk-free rate. Using specified value and momentum inputs for the 1,000 U.S. stocks with the largest market capitalizations during January 2000 through December 2025, he finds that: