Looking for a quant!

[Kingen]

Hi, I'm looking for a quant to discuss a trading strategy I'm with.

PM me if interested.

- Kingen

 

[Directional]

depends on what you want to discuss but you might be better posting your questions over at wilmott.com forums as that is a quant forum.

 

[Kingen]

depends on what you want to discuss but you might be better posting your questions over at wilmott.com forums as that is a quant forum.

Thank you! Will check it out.

 

[Tadragh1]

I contacted Kingen and we both decided to put our PMs on the forum, so you can see what it was about. Maybe someone finds it helpful.

The thing I would like to discuss is, if there is a convenient way to view the development in price and fundamental value of a stock overt time in the same chart. Say for example a chart showing both the development of the EPS and the price in the same chart.

I guess you can see where I'm heading. If for example EPS have been rising for a long time, but the price has barely moved, that would be viewed as a undervalued company and vice versa.

If we say that price is comprised of EPS and estimated future EPS, then there should be some correlation between price and EPS. This is the part I have a problem of defining, how to best find the divergence between the two.

*Since this strategy is likely to have "inefficiencies", it would probably be best to use the most extreme cases of divergence. Also there is the issue with inaccuracy of estimated earnings.

I am not sure how much formal financial knowledge you have, so excuse me if I oversimplify things here and there.
First of all bear in mind, that you have clear EPS measurements only once every quarter. To visualize the EPS trend and compare it with the price trend you would have to do these:
1. Let's say the EPS were announced on 1st May and the previous quarter was announced 1st February.
2. You rescale the price, so the price for 1st February is 100.
3. You rescale the EPS, so the 1st February EPS is 100.
4. On the same chart you plot the price graph going from 100 on 1st February to wherever it went on 1st May.
5. You draw a straight line between EPS on 1st February and EPS on 1st May.

This is the "visual" way to do it.

However I am pretty certain this will have low information value, and 0 trading value. Bear in mind the seasonal behaviour (maybe better to compare yoy changes) and other factors like scale, sector average etc.
Still, it would probably be a good educational experience to understand the market better.

 

[A Dashing Blade]

Looks about right to me.