Quantified Alpha‘s has launched its algorithmic stock market analysis tool to provide users with reliable investment insights.
It is the first trading platform built from the ground up and based on evidence from financial research. The company provides unprecedented transparency into the way their investment models are built, which serves to educate clients, assure them of data-driven objectivity, and facilitate sound investments.
The platform’s algorithmic models are built to reflect academic research about equity trading. It analyzes over 3,000 U.S. equities in real-time and is built to capitalize on a range of academically proven anomalies in the market. Anomalies are recurring patterns in the market that can be exploited to generate “alpha,” or excess returns. Academics have found that these anomalies offer individual investors the best chance to generate abnormal profits, as detailed in the research paper, “Can Individual Investors Beat the Market?” (Coval 2005). Nevertheless, most individual investors are unaware that these anomalies even exist.
The anomalies center on:
- Seasonality: Certain companies and industries perform better at different times of year.
- Value: Stocks that trade at cheap valuations (i.e. a low price-to-book ratio) have been proven to consistently outperform stocks that are trading at high multiples.
- Momentum: Stocks that have performed well over the past 6-12 months have a tendency to continue to outperform in the subsequent 3 to 12 month periods.
- ‘Smart money’ Sentiment: Company insider selling, institutional selling, and high levels of short interest historically underperform.
- Earnings: Stocks that consistently beat analyst earnings estimates tend to continue to do so.
- Economy: Historical indicators reveal that certain conditions are better for investment, such as low inflation, high unemployment, low consumer confidence, etc. (coming soon).
“Unlike other websites that just provide data- our aim is to provide insight into what the data implies about the future direction of the stock price,” said CEO and Quantified Alpha Founder, Andrew Young. “We hope to drive change, and enable individual investors to leverage financial academia models without having to pay upwards of $2,000 to Bloomberg Business Intelligence, or going through a managed fund. We really think this will be an excellent and reliable resource for independent retail investors.”
According to SPIVA, managed mutual funds tend to do very poorly, often considerably underperforming in the market. For example, in 2012, 66.08 percent of these actively managed mutual funds underperformed against the S&P 1500. To add insult to injury, the fund managers often charge investors high fees for their services. However, retail investors are taking note of this and are moving towards do-it-yourself and algorithmic investments. Quantified Alpha is leveraging this trend, and is currently the only company in the field that is focusing exclusively on leveraging insights from financial academia.
“Launching Quantified Alpha has been an exhilarating experience. Now we hope to pass on some of our enthusiasm to our clients as they move from their managed mutual funds and begin to experiment with self-managed investments. We truly believe that they will come to see our platform as an invaluable investment tool,” added Young.