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Investing/Strategies / Mechanical Investing
|Subject: Re: SoWR and New Relative Value Screen||Date: 2/11/2013 1:18 PM|
|Author: BarryDTO||Number: 241539 of 257136|
I have used the Sum of Weighted Ranks (SoWR) procedure ...
Ah, someone other than tetranomad is looking at this approach - interesting. I thought I'd offer a few thoughts since my name is attached:
-- Mungofitch indicated he thought high volatility was sought here; however, it's actually low volatity that is emphasized as any weight is applied to the criteria "Volit" (because of the opposite sort applied in the ranking). As you seemed to indicate and someone else noted, bringing down the volatility of screen results would be helpful. A simple run of your screen as is, but parameterizing the weight given to the Volit criteria indicates a weight of 70 seems to do the job:
shows a 20-stock CAGR/GSD/Sharpe of 34 / 23 / 1.44 (versus your original 43 / 37 / 1.26), and 10-stock results of 36 / 24 / 1.40 (versus your 51 / 44 / 1.25)
-- Tetranomad cautioned against optimizing against too many selection criteria and parameters. I've also said in earlier posts that I'm not a big fan of the "kitchen sink" approach to including selection criteria (I've seen the opposite opinion from others in recent posts, but hey, that's what makes a market!). Although 5 criteria may still be too many for my taste (and these 5 may not be the best ones), I looked at possible parameters for the following 5 criteria of those you included, since they seemed at first glance to be "most important": FCF, VolRatio, Volit, RRS63, RRS189. Here's a look at one screen using these (with further parameter optimization possible):
shows 20-stock results of 27 / 19 / 1.32 and 10-stock results of 32 / 21 / 1.45 (worse than the screen above for 20 stocks, but better for 10 stocks).
-- As I've described before, I have a preference for requiring a minimum dollar volume throughout the backtest period rather than a percentile dollar volume. Using $500,000 throughout the period reduces these results further:
shows 20-stock results of 23 / 19 / 1.16 and 10-stock results of 28 / 21 / 1.29.
-- I looked at ranking FCF across all stocks, rather than the within industry approach you used (and HRV uses). Results were worse by ranking across all stocks - I may have to relook at incorporating this into screens where I use various valuation criteria (as I did in the "Parsimony and Bang for Buck" post last year).
-- I think it would be important to look at 1987-1997 results. I'm not sure if the industry codes in the gtr1 backtester (versus gtr1/2011) have the same value definitions for "pref(incd.s, incd.f)" as for fincd.a in the 2011 version, so I don't know if excluding your industry codes of 45 through 48 would be accomplished the same way. My interpretation of excluding these codes is that the following broad industries are excluded: Banking, Insurance, Real Estate, Finance. Perhaps others can comment on how to look at this "out of sample" period (and whether excluding all these industries is really appropriate). The gtr1 backtester would also need to use the appropriate field to capture FCF.
Those are my quick thoughts - thanks for presenting the screen.
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