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InspectorSector
Re: Question for Yuval

You can make a conditional node that is either true or false based on some time period, such as a price rising above its moving average.

The alternative would be to make the condition based on some factor such as market capitalization.

Jan 10, 2021 12:05:24 PM       
abwillingham
Re: Question for Yuval


Yes, that's the whole point of composite nodes. If you used a simple weighted average, then putting something in a composite node would make no difference at all.


Yuval I don't understand the "normalization" of the composite nodes at all.

According to this example from the docs, the lower % factor is effectively ignored.

Maybe if I had the actual "normalization" formula, that would explain it better.
In this example I would expect AMZN to have a rank > 0, unless Rank 0 just means last place in the ranking, in which case I understand completely.

Attachment normalize.PNG (41530 bytes) (Download count: 124)


Jan 10, 2021 12:55:15 PM       
Edit 4 times, last edit by abwillingham at Jan 10, 2021 2:00:28 PM
yuvaltaylor
Re: Question for Yuval


In this example I would expect AMZN to have a rank > 0, unless Rank 0 just means last place in the ranking, in which case I understand completely.

Yes, rank 0 simply means last place in the ranking.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)
Any opinions or recommendations in this message are not opinions or recommendations of Portfolio123 Securities LLC.

Jan 10, 2021 11:27:28 PM       
rtelford
Re: Question for Yuval

Yuval, thanks for the breakdown.

I've put the example into Excel to see how the numbers work. I've normalized values between 0-100. See attached Excel file, also screenshot for reference.

In the end, for this example at least, there seems to be no difference between the top 3 ranks of weighted average and normalized method. There is only a slight difference between ranks on a lower ranked stock.

As noted, I've normalized between 0-100. In the examples in the P123 documentation and Yuval's example, top stocks are ranked 90, not 100. Perhaps this is a discrepancy between the methods.

Please take a look; if there is another nuance, please let me know.

My aim here is not to split hairs, but to make sure I'm on board with how P123 is ranking!

Cheers,
Ryan

Attachment Ranking, normalized screencap.PNG (34641 bytes) (Download count: 97)


Attachment Normalized example, Excel.xlsx (12790 bytes) (Download count: 2)


Jan 11, 2021 6:46:46 AM       
yuvaltaylor
Re: Question for Yuval

Yuval, thanks for the breakdown.

I've put the example into Excel to see how the numbers work. I've normalized values between 0-100. See attached Excel file, also screenshot for reference.

In the end, for this example at least, there seems to be no difference between the top 3 ranks of weighted average and normalized method. There is only a slight difference between ranks on a lower ranked stock.

As noted, I've normalized between 0-100. In the examples in the P123 documentation and Yuval's example, top stocks are ranked 90, not 100. Perhaps this is a discrepancy between the methods.

Please take a look; if there is another nuance, please let me know.

My aim here is not to split hairs, but to make sure I'm on board with how P123 is ranking!

Cheers,
Ryan

No, normalization is not what happens after ranks are combined. Instead, all the stocks are RERANKED and ranks are assigned accordingly. This is necessary so that composite nodes function in the same manner as a simple node, with evenly spaced ranks, and so that composite nodes actually accomplish something instead of simply replicating what separate nodes would do.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)
Any opinions or recommendations in this message are not opinions or recommendations of Portfolio123 Securities LLC.

Jan 11, 2021 10:55:05 AM       
Edit 1 times, last edit by yuvaltaylor at Jan 11, 2021 3:34:50 PM
rtelford
Re: Question for Yuval

OK, got it now. Clearly the composite nodes do not use weighted averages to rank, as you noted and through my Excel file there would be no difference in the ranking (but have the advantage of grouping similar themed nodes together for ease of management).

I believe what was throwing me off is that the documentation refers to "weighted average" between nodes in a composite, but I believe this should be "weighted sum".
https://www.portfolio123.com/doc/side_help_item.jsp?id=29

All of this said, if composite nodes treat ranks like this, then was the original intent of composites to deal specifically with related ratios only, i.e. like your Dupont ROE example? Or were other applications intended for use w/ composites?

The P123 Core ranking systems all use composite nodes (and often composites within composites). While the nodes within composites are related, should they be shown as separate nodes for the reasons discussed in this post? Or are the composites used in these P123 ranking systems for demonstration/presentation purposes, to group similar themed nodes?

Thanks,
Ryan

Jan 12, 2021 6:37:30 AM       
yuvaltaylor
Re: Question for Yuval

OK, got it now. Clearly the composite nodes do not use weighted averages to rank, as you noted and through my Excel file there would be no difference in the ranking (but have the advantage of grouping similar themed nodes together for ease of management).

I believe what was throwing me off is that the documentation refers to "weighted average" between nodes in a composite, but I believe this should be "weighted sum".
https://www.portfolio123.com/doc/side_help_item.jsp?id=29

All of this said, if composite nodes treat ranks like this, then was the original intent of composites to deal specifically with related ratios only, i.e. like your Dupont ROE example? Or were other applications intended for use w/ composites?

The P123 Core ranking systems all use composite nodes (and often composites within composites). While the nodes within composites are related, should they be shown as separate nodes for the reasons discussed in this post? Or are the composites used in these P123 ranking systems for demonstration/presentation purposes, to group similar themed nodes?

Thanks,
Ryan


The composite ranking method has always been the default method at Portfolio123, and when the ranking systems were originally designed they were designed to use composite nodes. This was based on the idea that one should rank stocks on value, growth, sentiment, quality, etc. separately first, and then combine the rankings to get the best stocks. This certainly makes some intuitive sense. One could argue, for example, that because all value ratios share one common element--a stock's price--it makes more sense to come up with an overall value score than to weight each value component separately.

By not using many composite nodes myself, I'm being heretical.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)
Any opinions or recommendations in this message are not opinions or recommendations of Portfolio123 Securities LLC.

Jan 12, 2021 1:47:36 PM       
rtelford
Re: Question for Yuval

Fair enough Yuval. Either way, I'll spend some time playing with and without composites and assess the impact on my strategies.

Thanks for the explaining this nuance.

Cheers,
Ryan

Jan 14, 2021 5:38:29 AM       
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