Multi-Factor Models are financial tools used to explain the returns of an asset by considering multiple factors instead of just one. These models help investors understand how different variables, such as market risk, interest rates, and economic growth, influence the performance of investments. By analyzing these factors, investors can make more informed decisions. In practice, Multi-Factor Models often use statistical techniques to identify the relationship between asset returns and the chosen factors. Common examples include the Fama-French Three-Factor Model, which adds size and value factors to the traditional Capital Asset Pricing Model (CAPM). This approach provides a more comprehensive view of risk and return.