Combining Factors
With this combination, we first selected the 20% of companies with the highest Piotroski F-score and then divided these companies into quintiles based on the second factor we tested. It's worth mentioning that even though you may think that combining the F-score with low price-to-book companies would be what Joseph Piotroski did in the paper mentioned previously, that would not be correct.
In his paper, Piotroski first selected low-price-to-book companies and then sorted these by the F-score. So for you to see the results of the strategy based on Piotroski’s paper, you would have to look under price-to-book as the first factor and the F-score as the second factor.
Based on average returns of the best quintile of all the second factors, this strategy returned 422% (median was 421%). Out of the nine two-factor strategies we tested, this one, on average, was the fifth best strategy. The best combination that would have given you a 680.4% return over 12 years would have been to combine a high F-score with companies that had the highest 12-month free cash flow yield.