Long positions are ideally stocks that are cheap, show good profitability & growth, are trending up, beat earnings estimates, earn cash instead of paper earnings, use their money & resources conservatively and show year-on-year improvement in margins, asset turns, dividends and buybacks.
- Model enhancements
- Several enhancements have been developed in-house that makes our model special compared to others.
The enhancements include a Value/Growth Score, that allows us to move away from the categorical concept of “pure Value” or “pure Growth”, and consider each stock as a mix of the two styles instead. Additionally, co-movement between stocks, as well as the correlation between factors and stocks, are taken explicitly into account.
Factor asymmetry is utilized by allowing factor distribution and threshold to vary. The model is adaptive, as emphasized by the management of the dynamic factor weights. Since factors are not linear and factor’s behavior is not constant over time, we determine a strategic set of factor weights that maximizes the long term predicting power of the model, conditioned on volatility and a minimum/maximum weight of individual factors and quadrants.
More information about some of the enhancements is available for registered users in our Whitepaper on Quantitative Stock Selection.
As a result, every day 1000 European stocks get a rank from 0 to 100. Stocks with a rank from 80 to 100 are the long candidates, from 0 to 20 are the short candidates.