Quantamental Investing Methodology & Process for Listed-equity Portfolios
The human capabilities of reasoning and financial data of companies are used to arrive at the fair value of a business in comparison to its actual value. We use financial statements, management guidance, macroeconomic setup, etc. to estimate the future performance of a business.
We use statistical tools to find and exploit anomalies in the markets which are in the form of Factors (momentum, size, volatility, quality, etc) or Statistical Arbitrages (correlations, mean-reversions, etc.). Models showing promising results over historical data are converted into algorithms for trading and investing.
Technical Investing relies on time-based price patterns considered over sliced timeframes (like 5 minutes, 15 minutes, 1 hour, 1 day, 1 week, and so on). We plot prices against time and predict price action by studying patterns visible to the trained eye or recognized by a machine. We use technical analysis to time entries and exits.
At this stage we determine whether to take up the risks of the market or seek the safety of alternate assets. This is done independently using Value, Growth or Sentiment market-cycle algorithms.
Red-flag stage invoves rejecting "known bad opportunities" to trim investment universe. Rejection parameters are chosen depending on the investment style (Value, Growth, or Sentiment) and are fundamental/ quantitative heavy.
The stocks in the qualified universe are assessed on multiple quantitative factors specific to the investment style of the strategy. The composite score is used to generate a rank list bucketed into quartiles, pentiles or deciles.
Ranking securites alone does not ensure efficient deployment of captital to generate alpha. In this stage we select securites exhibiting specific technical price patterns or time their exits. Both technical and quantiative components are significant here.
All stages including tactical as well as red, yellow and green flags are combined to express the confidence for taking posuition in a security. The combined scores are used to position-size each trade dynamically.