How to normalise companies relative to each other? Remove the effect of macro-economy?

Question

I want to focus on companies-performance only and as much as possible remove the effect of macro-economy. Interest rate changes, crisis, inflation etc.

There are 2 goals:

1. Simplification of analysis for value investing. When I look at company financial report numbers and historical time series - I want to see simple curves, without jumps and falls caused by macroeconomy.
2. Better account for inflation. I don't know how to account for inflation correctly (I don't trust CPI and other measures of inflation). So it would be better to completely ignore USD and measure numbers in something else, thus eliminate the inflation.

The general idea - measure company numbers in numbers of other companies, not in USD. That's probably not a new idea and I guess some people already did something like that. What are the popular approaches to do that? Maybe calculating market averages and measuring company financial reports in market average metrics? Looking for links examples and ideas.

Answer 1

The most common way this is applied is via trading within a given market or sector. For instance, biotech or telecom stocks are largely exposed to similar risk factors so creating a long/short portfolio using whatever unique info you think you have you're roughly neutral to sector-specific risk factors and are just betting company A will do better than company B (relatively easier) versus what the sector or economy as a whole will do (directionally, much more difficult).

This is in fact a version of what a lot of professional fundamental PMs do.