Reverse Engineer Factor Relevance of Best (Worst) Stocks
This tool calculates the average Rank of each factor in a Ranking System for the best (or worst) performing
stocks during a certain period. If a factor ranks well above or below 50, then adjustements can be made
to the strategy to increase or decrease the exposure to the factor. Only the factors of stocks that pass a
performance filter are averaged.
Here's an example of the output:
Figure 1
These results are the average of 3 periods between 01/03/2003 and 03/02/2003.
The interval between periods is 4 weeks. The average number of stocks that passed the screen and
had the required performance, 10.0% or More, is 426.
These results show that the best performing stocks had high rating for the following factors:
'PE vs 5Y avg', 'PEG', and 'EPS%ChgTTM'. The least significant factors were 'Ind Rel Strength', '1MoRetReversal' and 'Prc2SalesIncDebt'.
Column Descriptions
The Factor column has the name of the factor in the Ranking System. A (+) after the name
means that the rank is higher with higher values, a (-) indicates the rank is higher with lower values.
The Avg Rank column has the average Rank. Higher than 50 means that stocks tended to score
better in this factor and you might consider increasing its weight.
The Avg StdDev column has the average standard deviation. A low standard deviation is preferable.
The Tot # Values Used is important because a very low number here makes the results unreliable. The
number of values changes, depending on the factor. The PEG factor, for example, is only valid for less than 1/3 of all stocks.
