The quality factor aims to capture the excess return on companies that are highly profitable, operationally efficient, safe, stable and well-governed, in short, high quality, versus the market. The markets also appear to reward relative earnings certainty and penalize stocks with high earnings volatility. A portfolio tilt towards businesses with high quality has been long advocated by stock pickers that rely on fundamental analysis but is a relatively new phenomenon in quantitative investments. The main challenge is how to define the quality factor consistently and objectively using quantitative indicators, given the subjective nature of quality. 

Strategies based on standalone quality factors tend to perform in a counter-cyclical way as investors pay a premium to minimize downside risks and drive up valuations. For this reason, quality factors are often combined with other risk factors in a multi-factor strategy, most frequently with value to produce the quality at a reasonable price strategy. Long-short quality factors tend to have negative market beta because they are long quality stocks that are also low volatility, and short more volatile, low-quality stocks. Hence, quality factors are often positively correlated with low volatility and momentum factors, and negatively correlated with value and broad market exposure.