Interpretable Factor Decomposition for Decision Intelligence in Large-Scale Financial Markets: Evidence from China's A-Share Market

We present an interpretable machine learning pipeline to decompose Cross-Sectional Equity Return Predictability into auditable factor contribution. We apply an XGBoost model with TreeSHAP attribution and conduct stress testing on 3632 Chinese A-share stocks from 2009 until 2019. Using 60-month, rolling windows over 55 months of out-of-sample data, XGBoost obtains a mean AUC of 0.547 and +2.38%/month (Newey-West t = 5.94; Annualized Sharpe 2.23) long-short spread for the top vs bottom quintiles. This alpha is persistent after adjusting for the Carhart four-factor model (+2.31%/month; t = 7.48). SHAP Decomposition indicates that behavioral signals (turnover and momentum) account for 58.2% of predictive attribution compared to 10.7% for valuation ratios, on average, across 55 industry groups. Ablation analysis serves to cross-validate this ranking and provides evidence that SHAP and ablation diverge in a manner that highlights feature substitutability structure that is largely invisible to either method used in isolation.

Diff-CA: Separating Common and Salient Factors with Diffusion Models

Contrastive Analysis aims to separate factors that are common between two data distributions from those that are salient to only one of them. Existing contrastive methods are based on generative models (e.g., VAEs or GANs) that often suffer from limited reconstruction and image quality, which hampers effective latent factor separation and limits their applicability to high-fidelity image generation and edition. We propose a novel conditioning framework for diffusion models that enables contrastive decomposition without compromising generation quality. We first train a prompt-free, image-conditioned diffusion model, and then learn to decompose the conditioning into a common and a salient factor, using weak supervision. We prove that the additive contrastive factorization, commonly assumed in prior work, is identifiable under mild conditions. This factorization enables targeted operations by swapping or interpolating only the salient factor.