I am confused whether the factors in a multi-factor model should be orthogonal or not. Google searches do not give a well documented answer and I couldn't find one in our library's limited catalog either. Intuition says they should. Moreover, the covariance of Mkt-RF with SMB and HML (on yearly data as obtained fron K. French's data library) is about 116 and 34 respectively, far from 0.
What am I missing?
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