deltix_estimizestrategy
DESCRIPTION
This paper describes the implementation of an automated equity trading strategy based on aggregated company earnings estimates from independent, buy-side, and sell-side analysts, along with those of private investors and students. By sourcing estimates from a diverse community of individuals (“crowd-sourcing”), Estimize provides an alternative view of earnings expectations compared to traditional sell-side analysts.We implemented the strategy in the Deltix QuantOffice research platform, a purpose-built C# development studio with embedded math, statistics and data libraries.TRANSCRIPT
-
5/22/2018 Deltix_EstimizeStrategy
1/21
Using crowd-sourced earningsestimates for automated trading
www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
2/212
The Main Thesis
Earnings estimates from independent analysts serve as a basis for
prediction of overnight market price movement, to generate alpha in US
equities.
2www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
3/213
Overall methodology
Sources of data:
Estimize draws estimates from a diverse community of individuals (crowd-sourcing);
Historical bars of 1min periodicity for S&P500 ticker universe.
Technology Deltix QuantOffice/QuantServer software:
TimeBase;
QuantOffice.
Major steps of the research:
Creation of initial setup;
Analysis of Estimize data;
Review of approaches suggested by Estimize, implementation of theseapproaches by means of QuantOffice Strategy Designer;
Investigation of main hypothesis which relies on earnings surprises we canexploit to generate excess returns;
Creation and backtesting of strategy generating trading signals based on Estimizeestimates.
3www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
4/214
Overview of Estimize Data in TimeBase
4www.deltixlab.com
Company reports
Ticker; Release date and time;
Release id;
Fiscal year and quarter;
Actual EPS and revenue;
Wall Street EPS and Revenue forecast.
-
5/22/2018 Deltix_EstimizeStrategy
5/2155www.deltixlab.com
Estimize estimates
Ticker;
Creation time;
Estimate_id;
Release_id;
Estimize EPS and revenue forecast.
-
5/22/2018 Deltix_EstimizeStrategy
6/21
6
Historical Bar1min Data
Historical bars of 1min periodicity for S&P100 ticker universe;
Total volume of data used in research is approximately 20,000,000messages.
6www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
7/21
7
Estimize Strategy Suggestions
7www.deltixlab.com
Parameter All Trades Long
Trades
Short Trades
Net Profit/Loss 3,526.05 4,161.70 -635.65
Total Profit 15,001.30 12,980.15 2,021.15
Total Loss -11,475.25 -8,818.45 -2,656.79
Cumulated Profit % 3.53 % 4.16 % -.64 %
Max Drawdown -1,374.99 -1,487.87 -953.00
Max Drawdown % -1.36 % -1.46 % -.95 %
Max Drawdown Date 4/18/2013 4/18/2013 10/21/2013
Return/Drawdown Ratio 2.56 2.80 -0.67
Drawdown Days % 74.41 % 69.73 % 96.09 %
Max Drawdown
Duration
146 133 362
CAGR 1.78 % 2.09 % -.32 %
Sharpe Ratio 1.26 1.34 -0.56
Annualized Volatility 1.41 1.56 0.58
Sortino Ratio 1.89 2.07 -0.74
UPI 0.30 0.36 -0.04
Information Ratio 1.26 1.34 -0.56
Optimal f 89.27 85.74 -96.86
All Trades # 440 360 80
Profitable Trades Ratio 0.55 0.58 0.45
Winning Trades # 244 208 36
Losing Trades # 196 152 44
Average Trade 8.01 11.56 -7.95
Average Winning Trade 61.48 62.40 56.14
Average Losing Trade -58.55 -58.02 -60.38
Avg. Win/ Avg. Loss
Ratio
1.05 1.08 0.93
Average Profit per Share 0.04 0.06 -0.03
Max Conseq. Winners 9 12 6
Max Conseq. Losers 7 8 10
-
5/22/2018 Deltix_EstimizeStrategy
8/21
8
Estimize Strategy Suggestions
8www.deltixlab.com
Parameter All Trades Long
Trades
Short Trades
Net Profit/Loss 2,247.09 299.13 1,947.95
Total Profit 12,561.88 809.73 11,752.15
Total Loss -10,314.80 -510.59 -9,804.20
Cumulated Profit % 2.25 % .30 % 1.95 %
Max Drawdown -1,682.98 -223.26 -2,258.80
Max Drawdown % -1.63 % -.22 % -2.19 %
Max Drawdown Date 11/6/2012 5/8/2013 11/6/2012
Return/Drawdown
Ratio
1.34 1.34 0.86
Drawdown Days % 94.14 % 66.41 % 93.95 %
Max Drawdown
Duration
363 232 363
CAGR 1.13 % .15 % .98 %
Sharpe Ratio 0.63 0.59 0.53
Annualized Volatility 1.81 0.26 1.86
Sortino Ratio 1.42 0.91 1.12
UPI 0.08 0.08 0.05
Information Ratio 0.62 0.59 0.52
Optimal f 34.55 232.73 28.37
All Trades # 439 24 415
Profitable Trades Ratio 0.50 0.71 0.49
Winning Trades # 221 17 204
Losing Trades # 218 7 211
Average Trade 5.12 12.46 4.69
Average Winning Trade 56.84 47.63 57.61
Average Losing Trade -47.32 -72.94 -46.47
Avg. Win/ Avg. Loss
Ratio
1.20 0.65 1.24
Average Profit per
Share
0.02 0.06 0.02
Max Conseq. Winners 12 7 12
Max Conseq. Losers 8 2 14
-
5/22/2018 Deltix_EstimizeStrategy
9/21
9
Market Over-reaction Hypothesis
Company EPS and revenue report happens overnight:
Using Estimize data as a basis for overnight market movement prediction (the
holding period is about 19 hours).
9www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
10/21
10
Estimize Estimates Distribution
The average number of estimates
per reporting period for a ticker
universe of the S&P100:
Directionality in estimates?
10www.deltixlab.com
Ticker Number Ticker Number Ticker Number
AAPL 186.57 MON 10.43 BMY 4.13GOOG 70.62 HON 10.33 FCX 4.00
AMZN 53.10 JNJ 9.64 APC 3.88
NKE 40.22 CVS 9.23 MET 3.80
SBUX 33.00 WMT 9.15 UNP 3.78
EBAY 32.85 PG 9.00 WAG 3.67
INTC 30.46 FDX 8.50 RTN 3.43
DIS 28.00 CL 7.50 UPS 3.43
JPM 27.56 UNH 7.50 LLY 3.36
CSCO 25.91 AIG 7.44 AEP 3.33
IBM 24.85 MRK 7.25 DOW 3.00
F 24.45 GILD 7.11 NOV 2.75
MSFT 22.92 ABT 6.78 NSC 2.75
V 22.64 HAL 6.67 MDT 2.67
ORCL 21.30 AMGN 6.63 SO 2.67
QCOM 19.83 BAX 6.57 MMM 2.63
HPQ 19.73 EMR 6.57 MDLZ 2.33
MA 18.38 PEP 6.50 UTX 2.33
HD 17.36 BA 6.44 DVN 2.25
DELL 16.71 T 6.44 EXC 2.25
EMC 16.25 LMT 6.29 COF 2.09
WFC 16.00 CVX 6.09 COP 2.00
LOW 15.88 MS 5.83 MO 2.00
GS 15.62 PFE 5.50 OXY 2.00
TGT 14.56 VZ 5.13 BK 1.88
COST 13.82 TWX 5.00 APA 1.75
TXN 13.77 SLB 4.78 PM 1.50
BAC 13.58 AXP 4.69 WMB 1.00
C 13.00 USB 4.50 ALL 0.00
MCD 13.00 XOM 4.40 BRK.B 0.00
CAT 11.31 DD 4.25 SPG 0.00
GE 11.11 ACN 4.22
KO 10.64 GD 4.20
- Estimize EPS Estimate
- Mean Estimize Estimate
-
5/22/2018 Deltix_EstimizeStrategy
11/21
11
Short Term and Long Term Period
11www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
12/21
1212
Directionality in Estimates
Optimistic:
Pessimistic:
Neutral
www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
13/21
13
Trading Hypothesis
13
Earnings surprise leads to market over-reaction;
Relatively higher optimism in the short term forecast compared to the long-term
forecast usually leads to negative price movement after the actual earnings
announcement, as the announcement will probably miss the short term expectation,
and the stock price will fall.
On the other hand, where long term optimism is followed by short term, pre-
announcement, pessimism then this predicts positive stock price movement.
www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
14/21
14
Trading Algorithm
14www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
15/21
15
PnL Curve: GOOG
15www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
16/21
16
PnL Curve and Statistics
16
Trade on S&P100,
Back-testing period:
from Dec 26, 2011 to Dec 31, 2013.
www.deltixlab.com
Parameter All Trades Long
Trades
Short
Trades
Net Profit/Loss 25,947.52 15,778.04 10,169.47
Total Profit 90,871.62 60,417.49 30,454.13
Total Loss -64,924.10 -44,639.44 -20,284.66
Cumulated Profit % 25.95 % 15.78 % 10.17 %
Max Drawdown -2,795.19 -2,062.33 -2,342.88
Max Drawdown % -2.39 % -1.86 % -2.12 %
Max Drawdown Date 1/28/2013 1/24/2013 7/31/2013
Return/Drawdown Ratio 9.28 7.65 4.34
Drawdown Days % 67.13 % 77.43 % 74.65 %
Max Drawdown
Duration
62 134 82
CAGR 12.61 % 7.83 % 5.11 %
Sharpe Ratio 2.40 1.73 1.49
Annu ali zed Vol ati li ty 5.25 4.53 3.44Sortino Ratio 4.17 2.95 2.70
UPI 1.07 0.64 0.43
Information Ratio 2.21 1.63 1.45
Optimal f 45.77 38.22 43.32
All Trades # 607 447 160
Profitable Trades Ratio 0.55 0.55 0.55
Winning Trades # 333 245 88
Losing Trades # 274 202 72
Average Trade 42.75 35.30 63.56Average Winni ng Trade 272.89 246.60 346.07
Average Lo sin g Trade -236.95 -220.99 -281.73
Avg. Win / Avg. Loss
Ratio
1.15 1.12 1.23
Average Pro fi t per
Share
0.20 0.17 0.26
Max Conseq. Winners 8 7 7
Max Conseq. Losers 6 6 5
-
5/22/2018 Deltix_EstimizeStrategy
17/21
17
Market Neutrality
17www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
18/21
18
PnL Curve and Statistics: $ neutral
18
Trade on S&P100,
Back-testing period:
from Dec 26, 2011 to Dec 31, 2013.
www.deltixlab.com
Parameter All Trades Long
Trades
Short
Trades
Net Profit/Loss 22,424.25 15,504.83 6,919.42
Total Profit 100,569.70 64,708.04 35,861.66
Total Loss -78,145.44 -49,203.20 -28,942.24
Cumulated Profit % 22.42 % 15.50 % 6.92 %
Max Drawdown -2,803.85 -2,518.20 -2,973.51
Max Drawdown % -2.45 % -2.15 % -2.87 %
Max Drawdown Date 1/28/2013 2/18/2014 8/21/2012
Return/Drawdown Ratio 8.00 6.16 2.33
Drawdown Days % 75.96 % 80.00 % 89.54 %
Max Drawdown
Duration
84 134 130
CAGR 10.13 % 7.12 % 3.24 %
Sharpe Ratio 2.04 1.59 0.88
Annu ali zed Vol ati li ty 4.97 4.47 3.68Sortino Ratio 3.42 2.66 1.43
UPI 0.76 0.52 0.18
Information Ratio 1.90 1.51 0.87
Optimal f 41.09 35.69 23.93
All Trades # 864 539 325
Profitable Trades Ratio 0.53 0.54 0.50
Winning Trades # 454 291 163
Losing Trades # 410 248 162
Average Trade25.95 28.77 21.29
Average Winni ng Trade 221.52 222.36 220.01
Average Lo sin g Trade -190.60 -198.40 -178.66
Avg. Win / Avg. Loss
Ratio
1.16 1.12 1.23
Average Pro fi t per
Share
0.13 0.15 0.11
Max Conseq. Winners 10 7 6
Max Conseq. Losers 6 6 6
-
5/22/2018 Deltix_EstimizeStrategy
19/21
19
PnL Curve and Statistics: beta neutral
19
Trade on S&P100,
Back-testing period:
from Dec 26, 2011 to Dec 31, 2013.
www.deltixlab.com
Parameter All Trades Long
Trades
Short
Trades
Net Profit/Loss 20,729.05 15,198.49 5,530.55
Total Profit 91,018.20 57,871.21 33,146.99
Total Loss -70,289.15 -42,672.71 -27,616.44
Cumulated Profit % 20.73 % 15.20 % 5.53 %
Max Drawdown -2,857.78 -2,131.02 -3,164.71
Max Drawdown % -2.51 % -1.92 % -3.08 %
Max Drawdown Date 1/28/2013 1/24/2013 7/26/2012
Return/Drawdown Ratio 7.25 7.13 1.75
Drawdown Days % 48.10 % 52.03 % 59.49 %
Max Drawdown
Duration
80 134 113
CAGR 6.86 % 5.11 % 1.91 %
Sharpe Ratio 1.68 1.41 0.61
Annu alized Volati li ty 4.08 3.63 3.13Sortino Ratio 2.84 2.38 0.95
UPI 0.65 0.50 0.12
Information Ratio 1.58 1.34 0.61
Optimal f 41.13 38.84 19.60
All Trades # 778 476 302
Profitable Trades Ratio 0.53 0.55 0.49
Winning Trades # 410 262 148
Losing Trades # 368 214 154
Average Trade26.64 31.93 18.31
Average Winni ng Trade 222.00 220.88 223.97
Average Lo sin g Trade -191.00 -199.41 -179.33
Avg. Win / Avg. Loss
Ratio
1.16 1.11 1.25
Average Pro fi t per
Share
0.14 0.17 0.09
Max Conseq. Winners 10 7 6
Max Conseq. Losers 7 6 6
-
5/22/2018 Deltix_EstimizeStrategy
20/21
Summary
Estimize estimates serve as a strong predictive factor of price directionality;
Estimize approaches were tested using QuantOffice strategy development
and back-testing functionality;
The relative optimism or pessimism of short term versus long term Estimize
estimates is a strong predictive factor of the price directionality after EPS
announcements; Dollar-neutral and beta-neutral portfolios demonstrate that the achieved
effect is uncorrelated with the market.
On stocks in the S&P100, back-testing shows that the unhedged strategy has
an average Information ratio of 2.21 over the period 2012-2013, with a
stronger performance in 2012. Dollar-neutral and beta-neutral strategiesachieved Information Ratios of 1.90 and 1.58 respectively, which indicates
that the strategy does generate alpha.
www.deltixlab.com
-
5/22/2018 Deltix_EstimizeStrategy
21/21
Recordings of Deltix demonstrationscan be viewed at:
https://www.youtube.com/deltixtutorials
www.deltixlab.com
https://www.youtube.com/deltixtutorialshttps://www.youtube.com/deltixtutorials