Deltix_EstimizeStrategy

5/22/2018 Deltix_EstimizeStrategy

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Using crowd-sourced earningsestimates for automated trading

www.deltixlab.com


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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.

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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.

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Overview of Estimize Data in TimeBase

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Company reports

Ticker; Release date and time;

Release id;

Fiscal year and quarter;

Actual EPS and revenue;

Wall Street EPS and Revenue forecast.


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Estimize estimates

Ticker;

Creation time;

Estimate_id;

Release_id;

Estimize EPS and revenue forecast.


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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


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Estimize Strategy Suggestions

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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


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Estimize Strategy Suggestions

8www.deltixlab.com


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 %


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




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




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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


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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


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Short Term and Long Term Period

11www.deltixlab.com


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Directionality in Estimates

Optimistic:

Pessimistic:

Neutral

www.deltixlab.com


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Trading Hypothesis

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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


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Trading Algorithm

14www.deltixlab.com


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PnL Curve: GOOG

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PnL Curve and Statistics

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Trade on S&P100,

Back-testing period:

from Dec 26, 2011 to Dec 31, 2013.

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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 %


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 %


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


Optimal f 45.77 38.22 43.32

All Trades # 607 447 160




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




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Market Neutrality

17www.deltixlab.com


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PnL Curve and Statistics: $ neutral

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Trade on S&P100,


from Dec 26, 2011 to Dec 31, 2013.

www.deltixlab.com


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


Max Drawdown -2,803.85 -2,518.20 -2,973.51

Max Drawdown % -2.45 % -2.15 % -2.87 %



Drawdown Days % 75.96 % 80.00 % 89.54 %

Max Drawdown

Duration

84 134 130

CAGR 10.13 % 7.12 % 3.24 %


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


Optimal f 41.09 35.69 23.93

All Trades # 864 539 325




Average Trade25.95 28.77 21.29

Average Winni ng Trade 221.52 222.36 220.01



Ratio

1.16 1.12 1.23


Share

0.13 0.15 0.11




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PnL Curve and Statistics: beta neutral

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Trade on S&P100,


from Dec 26, 2011 to Dec 31, 2013.

www.deltixlab.com


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


Max Drawdown -2,857.78 -2,131.02 -3,164.71

Max Drawdown % -2.51 % -1.92 % -3.08 %



Drawdown Days % 48.10 % 52.03 % 59.49 %

Max Drawdown

Duration

80 134 113

CAGR 6.86 % 5.11 % 1.91 %


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


Optimal f 41.13 38.84 19.60

All Trades # 778 476 302




Average Trade26.64 31.93 18.31

Average Winni ng Trade 222.00 220.88 223.97



Ratio

1.16 1.11 1.25


Share

0.14 0.17 0.09




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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.

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Recordings of Deltix demonstrationscan be viewed at:

https://www.youtube.com/deltixtutorials

www.deltixlab.com
https://www.youtube.com/deltixtutorialshttps://www.youtube.com/deltixtutorials

Documents

Deltix_EstimizeStrategy