David Kedmey, President and Cofounder - CMT … Black & Decker, Inc. SWK 0.787 6. Clear Channel...
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David Kedmey, President and Cofounder
Transcript of David Kedmey, President and Cofounder - CMT … Black & Decker, Inc. SWK 0.787 6. Clear Channel...
David Kedmey, President and Cofounder
The Missing Factor: How EidoSearch
Reveals the Performance of Patterns
Today’s Discussion
Content-based Search
Query:
The Rolling Stones
Query:
Falling Volatility
Results:
Historic Periods of Falling Volatility
Results:
Led Zeppelin & Hendrix
Research Software is
Cumbersome
FIND
1: percent_move from today to 33 values later of MSFT
IF
1 value ago {
1 value percent_move of MSFT is more than
(30 day average of 1 value percent_move of MSFT +
(2 + 30 day std_dev of 1 value percent_move of MSFT
)
) }
AND
1 value move of MSFT is more than 0
AND
1 value ago
(reversalBull { MSFT }
}
Search by Example is Intuitive
Search by Example is Intuitive
Search by Example is Intuitive
Search by Example is Intuitive
Search by Example is Intuitive
2.5% Absolute Return
1 Month After Pattern
Immediate, Quantitative
Results
1. Start with an Investment Idea (Portfolio Holding). A PM believes
Alcoa is poised to outperform after a year of underperforming the S&P.
The graph below illustrates Alcoa’s underperformance over the last
one year.
Individual Security Analysis
0.006
0.007
0.008
0.009
0.010
0.011
0.012
0.013
6/15/2011 6/15/2012
Alcoa Relative to S&P 500
2. Quantify Risk and Return. The PM uses our search engine to find
historic examples of stocks that underperformed the S&P. A back-test
of the historic search results quantifies the risk and return potential of
Alcoa.
Individual Security Analysis
Backtest Statistics 1 Mo 3 Mo 6 Mo 1 Yr
Average 4.4% 6.1% 10.7% 40.6%
Median 3.1% 6.6% 3.1% 17.4%
Standard Deviation 15.4% 31.5% 53.1% 115.6%
% Gainers (Hit Rate) 67% 63% 57% 73%
1 Mo 3 Mo 6 Mo 1 Yr
Average 4.4% 6.1% 10.7% 40.6%
Median 3.1% 6.6% 3.1% 17.4%
Standard Deviation 15.4% 31.5% 53.1% 115.6%
% Gainers (Hit Rate) 67% 63% 57% 73%
3. Strategy Recommendation: Buy Alcoa, Hold for 1 Year. The
back-test suggests a 73% probability of an increase in the price of
Alcoa over the next one year, with an average return of 40%.
Individual Security Analysis
4. Find Additional Similar Opportunities Today. Our software allows
the PM to search for other stocks that currently exhibit similar
underperformance, using Alcoa’s relative price directly as a search
query. A single click retrieves the following search results, ranked by
similarity.
Individual Security Analysis
$ millions
# Symbol Name Industry Mkt Cap
1 FSLR First Solar Inc Technology $1,900
2 ANR Alpha Natural Resources Basic Materials 3,500
3 NFX Newfield Exploration Co Basic Materials 4,400
4 BTU Peabody Energy Corp Basic Materials 7,700
5 CVC Cablevision Systems Co A Services 2,900
Watch List of Similar Stocks
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75
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85
90
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100
105
110
Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12
Asset Allocation Strategies
Crude Oil
1
2
3
4
5
6
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
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23
28
33
38
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
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Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
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65
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85
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
5
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Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
40
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90
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
MW
P7E.BE
SWK
TRN
CCO
LUFK
1. Petro Resources P7E.BE 0.813
2. Trinity Industries Inc. TRN 0.809
3. Lufkin Industries, Inc. LUFK 0.799
4. Men's Wearhouse Inc. MW 0.792
5. Stanley Black & Decker, Inc. SWK 0.787
6. Clear Channel Outdoor Holdings, Inc. CCO 0.786
Stocks Most Sensitive to
Crude
Choose an Environment of Variables
Use macro statistics and proprietary factors to assess market risks and
enhance asset allocation.
Macro Economic Analysis
Brent Crude
10 Year Treasury Rate
EURUSD Exchange
70
90
110
Jul-11 Jul-12
1.2
1.3
1.4
1.5
Jul-11 Jul-12
1.0%
1.8%
2.5%
3.3%
Jul-11 Jul-12
Consumer
Cyclical
Consumer
DefensiveEnergy Financials Healthcare
5.2% (1.2%) 3.7% 6.3% 5.6%
Industrials Materials Technology Telecomm Utilities
2.5% 0.5% 3.1% (3.2%) (2.3%)
Macro Economic Analysis
Use macro statistics and proprietary factors to assess market risks and
enhance asset allocation.
Industry performance after similar macro environments
Intraday Analysis
Rapidly back-test the behavior of intraday prices to develop and adapt
trading strategies.
Industry performance after similar macro environments Price Behavior from 9:30 am to 10:00 am
Portfolio Construction
Systematically back-test a universe of stocks to find the best long and
short positions
Price and Fundamental Inputs
80
280 Closing Price
30%
50% Gross Profit % of Revenue
25%
40% Institutional Ownership %
Portfolio Construction
Systematically back-test a universe of stocks to find the best long and
short positions
Ranked List Based on Back-test Performance Constituents of the S&P 500
Performance
Rank Company Name Returns
1 Company A 27.3%
2 Company B 22.8%
3 Company C 16.5%
… … …
498 Company X (7.1%)
499 Company Y (7.5%)
500 Company Z (8.2%)
Portfolio Test: Long vs Equal
Portfolio Test: Long/Short vs
Equal
Who We Are
Dr. Xiao-Ping (Steven) Zhang David Kedmey
• CEO
• Professor, Electrical
Engineering
• Engineering work in many
industries
• University of Chicago Booth
• President
• M&A Banker, Oppenheimer
& Co.
• Broker, high net worth clients
• University of Chicago Booth
Cycle of Analysis
Best solution
is missed
Refinement Exploration
Refine
from here
Many alternate
solutions explored
Quantitative Strategies Enhanced by EidoSearch
• Asset Allocation Strategies • Brokerage / Hedging • Factor Analysis • Lead-lag Relationships • Long-Short Opportunities • Macro Economic Analysis • Momentum • Portfolio Construction • Rule-Based Testing • Technical Analysis • Trade Execution
Cross Correlations
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Cross Correlations
0.459
One thing we know for sure, the correlation today will not be the correlation tomorrow.
Cross Correlations
When have we last seen upward momentum in the cross correlation?
Cross Correlations
We identify 10 similar periods of similar upward momentum
Cross Correlations
What tends to happen next?
Cross Correlations
0.46
0.92
0.69
0.14
Pairs Analysis
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Pairs Analysis Search across all 250,000 potential pairs in the S&P500 for similar trade opportunities
Pairs Analysis
35
Idealized Pair
Pairs Analysis
36
Idealized Pair
Rules-based Analysis
37
Rules-based Analysis
38
Rules-based Analysis
39
Rules-based Analysis
40
Rules-based Analysis
41
Rules-based Analysis
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