Analyst coverage-based peers enhance momentum and reversal signals

Share This Post

By Vinesh Jha, CEO & founder of ExtractAlpha

We recently released a new research note to explore utilizing analyst coverage-based peers to amplify momentum and reversal technical signals in stock trading. This approach integrates insights from our TrueBeats product into more traditional statistical signals, offering a new dimension to trading strategies.

Request the research paper to learn more about the performance of this strategy. 

Reversal Strategies

The foundation of reversal strategies lies in identifying stocks that have diverged from their peer group, with the anticipation that these divergences will eventually reconverge in the absence of fundamental reasons for the deviation. Traditionally, peers are identified using industry classifications or, as presented in the research, by employing residual returns to control for industry and risk characteristics.

Peer Relative Approach

The research introduces an alternative method for identifying groups of similar firms based on sell side analyst coverage, leading to a more nuanced understanding of a stock’s relationship with its peers. The results are striking, showing that a peer relative approach outperforms traditional methods, delivering superior returns and improved risk-adjusted profiles. This shift opens up new possibilities for refining reversal strategies.

Enhancing Momentum Factors

The research explores the concept of peer momentum. By examining whether a company’s peers moving in a certain direction can predict the stock’s future movement, the study creates a basket of peers weighted based on analyst overlap. This peer relative momentum effect demonstrates a unique return pattern, providing a distinctive signal for traders.

Comparative Analysis

To validate the robustness of the findings, the research compares the peer-based approach with simpler alternatives. The results showcase the superiority of the peer-based models over industry classifications or residual returns from peers. This thorough examination ensures that the observed effects are not merely replicating existing signals but represent a genuinely novel and valuable insight.

Conclusion

In conclusion, this research note sheds light on the potential of incorporating analyst coverage-based peers into both reversal and momentum strategies. The findings suggest that this innovative approach can significantly enhance returns and improve risk-adjusted profiles. 

Traders and investors may find value in integrating these insights into their decision-making processes. New novel methodologies could be the key to unlocking new streams of alpha. 

Request the full report:

More To Explore

S&P Capital IQ Pro Competitor and Overview

Introduction In the highly competitive financial information industry, S&P Capital IQ Pro has emerged as a leading player, offering a comprehensive suite of tools and

Financial Data Visualization

In the realm of finance, where information is king, the ability to distill complex data into visually compelling representations is a game-changer. Financial data visualization

Chloe Miao

Chloe joined ExtractAlpha in 2023. Prior to joining, she was an associate director at Value Search Asia Limited. She earned her Masters of Arts in Global Communications from the Chinese University of Hong Kong.

Matija Ratkovic

Matija is a specialist in software sales and customer success, bringing experience from various industries. His career, before sales, includes tech support, software development, and managerial roles. He earned his BSc and Specialist Degree in Electrical Engineering at the University of Montenegro.

Jack Kim

Jack joined ExtractAlpha in 2022. Previously, he spent 20+ years supporting pre- and after-sales activities to drive sales in the Asia Pacific market. He has worked in many different industries including, technology, financial services, and manufacturing, where he developed excellent customer relationship management skills. He received his Bachelor of Business in Operations Management from the University of Technology Sydney.

Perry Stupp

Perry brings more than 20 years of Enterprise Software development, sales and customer engagement experience focused on Fortune 1000 customers. Prior to joining ExtractAlpha as a Technical Consultant, Perry was the founder, President and Chief Customer Officer at Solution Labs Inc. a data analytics company that specialized in the analysis of very large-scale computing infrastructures in place at some of the largest corporate data centers in the world.

Perry Stupp

Perry brings more than 20 years of Enterprise Software development, sales and customer engagement experience focused on Fortune 1000 customers. Prior to joining ExtractAlpha as a Technical Consultant, Perry was the founder, President and Chief Customer Officer at Solution Labs Inc. a data analytics company that specialized in the analysis of very large-scale computing infrastructures in place at some of the largest corporate data centers in the world.

Janette Ho

Janette has 22+ years of leadership and management experience in FinTech and analytics sales and business development in the Asia Pacific region. In addition to expertise in quantitative models, she has worked on risk management, portfolio attribution, fund accounting, and custodian services. Janette is currently head of relationship management at Moody’s Analytics in the Asia-Pacific region, and was formerly Managing Director at State Street, head of sales for APAC Asset Management at Thomson Reuters, and head of Asia for StarMine. She is also a board member at Human Financial, a FinTech firm focused on the Australian superannuation industry.

Leigh Drogen

Leigh founded Estimize in 2011. Prior to Estimize, Leigh ran Surfview Capital, a New York based quantitative investment management firm trading medium frequency momentum strategies. He was also an early member of the team at StockTwits where he worked on product and business development.  Leigh is now the CEO of StarKiller Capital, an institutional investment management firm in the digital asset space.

Andrew Barry

Andrew is the CEO of Human Financial, a technology innovator that is pioneering consumer-led solutions for the superannuation industry. Andrew was previously CEO of Alpha Beta, a global quant hedge fund business. Prior to Alpha Beta he held senior roles in a number of hedge funds globally.

Natallia Brui

Natallia has 7+ years experience as an IT professional. She currently manages our Estimize platform. Natallia earned a BS in Computer & Information Science in Baruch College and BS in Economics from BSEU in Belarus. She has a background in finance, cybersecurity and data analytics.

June Cook

June has a background in B2B sales, market research, and analytics. She has 10 years of sales experience in healthcare, private equity M&A, and the tech industry. She holds a B.B.A. from Temple University and an M.S. in Management and Leadership from Western Governors University.

Steven Barrett

Steve worked as a trader at hedge funds and prop desks in Hong Kong and London for 15+ years. He also held roles in management consultancy, internal audit and business management. He holds a BA in Business Studies from Oxford Brookes University and an MBA from Hong Kong University of Science & Technology.

Jenny Zhou, PhD

Jenny joined ExtractAlpha in 2023. Prior to that, she worked as a quantitative researcher for Chorus, a hedge fund under AXA Investment Managers. Jenny received her PhD in finance from the University of Hong Kong in 2023. Her research covers ESG, natural language processing, and market microstructure. Jenny received her Bachelor degree in Finance from The Chinese University of Hong Kong in 2019. Her research has been published in the Journal of Financial Markets.

Kristen Gavazzi

Kristen joined ExtractAlpha in 2021 as a Sales Director. As a past employee of StarMine, Kristen has extensive experience in analyst performance analytics and helped to build out the sell-side solution, StarMine Monitor. She received her BS in Business Management from Cornell University.

Triloke Rajbhandary

Triloke has 10+ years experience in designing and developing software systems in the financial services industry. He joined ExtractAlpha in 2016. Prior to that, he worked as a senior software engineer at HSBC Global Technologies. He holds a Master of Applied Science degree from Ryerson University specializing in signal processing.

Jackie Cheng, PhD

Jackie joined ExtractAlpha in 2018 as a quantitative researcher. He received his PhD in the field of optoelectronic physics from The University of Hong Kong in 2017. He published 17 journal papers and holds a US patent, and has 500 citations with an h-index of 13. Prior to joining ExtractAlpha, he worked with a Shenzhen-based CTA researching trading strategies on Chinese futures. Jackie received his Bachelor’s degree in engineering from Zhejiang University in 2013.

Yunan Liu, PhD

Yunan joined ExtractAlpha in 2019 as a quantitative researcher. Prior to that, he worked as a research analyst at ICBC, covering the macro economy and the Asian bond market. Yunan received his PhD in Economics & Finance from The University of Hong Kong in 2018. His research fields cover Empirical Asset Pricing, Mergers & Acquisitions, and Intellectual Property. His research outputs have been presented at major conferences such as AFA, FMA and FMA (Asia). Yunan received his Masters degree in Operations Research from London School of Economics in 2013 and his Bachelor degree in International Business from Nottingham University in 2012.

Willett Bird, CFA

Prior to joining ExtractAlpha in 2022, Willett was a sales director for Vidrio Financial. Willett was based in Hong Kong for nearly two decades where he oversaw FIS Global’s Asset Management and Commercial Banking efforts. Willett worked at FactSet, where he built the Asian Portfolio and Quantitative Analytics team and oversaw FactSet’s Southeast Asian operations. Willett completed his undergraduate studies at Georgetown University and finished a joint degree MBA from the Northwestern Kellogg School and the Hong Kong University of Science and Technology in 2010. Willett also holds the Chartered Financial Analyst (CFA) designation.

Julie Craig

Julie Craig is a senior marketing executive with decades of experience marketing high tech, fintech, and financial services offerings. She joined ExtractAlpha in 2022. She was formerly with AlphaSense, where she led marketing at a startup now valued at $1.7B. Prior to that, she was with Interactive Data where she led marketing initiatives and a multi-million dollar budget for an award-winning product line for individual and institutional investors.

Jeff Geisenheimer

Jeff is the CFO and COO of ExtractAlpha and directs our financial, strategic, and general management operations. He previously held the role of CFO at Estimize and two publicly traded firms, Multex and Market Guide. Jeff also served as CFO at private-equity backed companies, including Coleman Research, Ford Models, Instant Information, and Moneyline Telerate. He’s also held roles as advisor, partner, and board member at Total Reliance, CreditRiskMonitor, Mochidoki, and Resurge.

Vinesh Jha

Vinesh founded ExtractAlpha in 2013 with the mission of bringing analytical rigor to the analysis and marketing of new datasets for the capital markets. Since ExtractAlpha’s merger with Estimize in early 2021, he has served as the CEO of both entities. From 1999 to 2005, Vinesh was the Director of Quantitative Research at StarMine in San Francisco, where he developed industry leading metrics of sell side analyst performance as well as successful commercial alpha signals and products based on analyst, fundamental, and other data sources. Subsequently, he developed systematic trading strategies for proprietary trading desks at Merrill Lynch and Morgan Stanley in New York. Most recently he was Executive Director at PDT Partners, a spinoff of Morgan Stanley’s premiere quant prop trading group, where in addition to research, he also applied his experience in the communication of complex quantitative concepts to investor relations. Vinesh holds an undergraduate degree from the University of Chicago and a graduate degree from the University of Cambridge, both in mathematics.

Subscribe to the ExtractAlpha monthly newsletter