7
votes
Accepted
P/E Ratio of a stock index
The preferred method for calculating the P/E of a stock index depends on how that index is calculated and what you are planning to do with it.
Let’s assume the stock index you are looking into is ...
- 1,046
6
votes
Accepted
Why is it wrong to rank stocks by P/E ratio, sell the top quartile, and buy the bottom quartile?
Proper backtesting is difficult, because of various biases that easily slip into the results if you are not careful.
For example how do you compute historical P/E's. Well, you have historical E's and ...
- 11.8k
4
votes
I am having difficulties calculating returns correctly
There is a common practitioner mistake when creating long/short strategies, thinking that you can create wealth out of nothing, hence, having an infinite return.
In practice, you need money to start ...
- 108
4
votes
Calculating the Risk Free Rate
Hint: If these 2 stocks have perfect negative correlation (correlation: -1), then you can construct a risk free portfolio. What would the return on that risk free portfolio be?
- 6,672
3
votes
Dupont analysis of banks
You can look at the contents of the CFA institute : https://blogs.cfainstitute.org/insideinvesting/2013/01/23/how-much-does-apple-make-a-dupont-analysis/ . As there are more and more candidates and ...
- 526
3
votes
Variance Ratio Test in R
TL;DR: the test statistic's distribution is $N(0,1)$
A bit more information about the Automatic Variance Ratio Test:
$H_0$: ${\Delta}r_t$ is serially uncorrelated (where ${\Delta}r_t=r_t-r_{t-1}$)
$...
- 745
2
votes
Downside Market Capture Ratio: compute with sum or product?
David Addison's discussion of log versus simple(arithmetic) returns in his answer is correct, but this particular calculation has nothing to do with arithmetic versus log returns.
Up Capture is ...
2
votes
Accepted
Downside Market Capture Ratio: compute with sum or product?
I am not familiar with that R package, but I've written a few performance tracking libraries in my past life, so I might be able to add some insight.
While it is indeed true that logarithmic returns ...
- 3,025
2
votes
Accepted
Square Information Ratio
You can define information ratio on ex-ante basis, so you will be using the expected values, and this definition is called alpha omega:
$IR=\frac{\alpha}{\omega}$
Let’s represent the risk reversion ...
- 6,242
2
votes
Accepted
Did I correctly calculate all the elements of the Sortino ratio?
Having reviewed the documentation sent by Noob2 and rechecking everything, I came to the following conclusion:
((6044−2002)/2002)^1/20.38=5.57% is absolutely wrong. If one does the calculations for ...
- 257
2
votes
Accepted
Should I use common equity or total equity for book value? (when replicating Lewellen's 2015 paper on a cross section of expected stock returns)
Even though he does not state it explicitly, it is likely that he used the value of common equity as the book value of equity.
On page 12, Lewellen states "some studies follow Fama and French (...
- 165
2
votes
Sharpe Ratio with Stochastic Interest Rate?
Sure! Sharpe ratio must be defined as the return per unit risk on a zero-cost position. The notion you are referring to achieves this by assuming borrowing at a risk-free rate before investing, so ...
- 942
1
vote
I am having difficulties calculating returns correctly
In designing a strategy like this there are two important decisions to be made, that are distinct (though inter-related).
The first question is Position Sizing. When you open a pair trade how much of ...
- 11.8k
1
vote
1
vote
Accepted
Scaling variables (Fraction vs % vs log) when regressing twelve month returns
To graph them I can either keep both the dependent and independent variables as fractions with the log variable as a log. Or both the independent and dependent variables as a % and divide the beta of ...
- 165
1
vote
Test significance for information ratio
The Information Ratio is indeed quite similar to a $t$-statistic; you could use that value to test whether your returns from active management are different from zero. In other words, the Information ...
- 764
1
vote
Calculate PE ratio of equal-weighted index
You just need to take the (simple) harmonic mean of the P/E's of the stocks in the index given that it's an equal-weighted equity index.
Suppose you have $N$ stocks in the equal-weighted index. Then, ...
- 1,046
1
vote
How sector PB ratio is calculated on ticker tape?
The sector PB ratio is in Tickertape is calculated using Sum of all the securities in the sector divided by the sum total of the book value of those securities. You can refer the support docs
1
vote
Conversion factor for futures hedging?
You hedge with fewer bonds b/c the price of the contract doesn't move 1 for 1 with the price of the bonds. That's because of the conversions factor.
BUT Once the bonds stop trading then you have a ...
- 2,683
1
vote
How to calculate R for strategies with dynamic exit points
For anyone looking for this, I ended up calculating average_win and average_loss and then calculating the ratio as:
...
1
vote
1
vote
About the number of independent forecasts in the Fundamental Law of Active Management
There is no such thing as number of independent bets when one is betting on a common random factor as we quants usually do. Grinold & Kahn’s formula is only relevant when the factor payoff is a ...
- 17
1
vote
Accepted
How can I get all the financial ratios of all the companies listed on Nasdaq?
https://www.quandl.com/api/v3/datatables/ZACKS/FC.csv?api_key=YOUR_API_KEY
where YOUR_API_KEY is your api key from quandl.
For more information: https://www.quandl.com/docs/api
- 153
1
vote
dollar neutral ratio vs beta hedged ratio
Wouldn't you just weight the p/l equation the same way your position is weighted? So:
(P(StockA)*0.8)/(P(StockB)*0.2) = Net % change in the position
- 11
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