Monthly Update · Portfolio Update

2016 YE Quant Portfolio Update

* This will be the last post in this blog – please follow us on Seeking Alpha going forward. Happy New Year!

Our automated tactical portfolio is managed using trading signals generated by our quantitative model. Our signals are based on technical and statistical indicators on U.S. large caps and ETFs, and have a short-term horizon between 10-20 trading days. For more information and try our trade signal service for free, please visit here.

Introduction to our Methodology

We have 2 suites of automated trading signals: Statistical Rarity & Statistical Pattern Recognition.

1) Statistical Rarity

Based on a series of technical indicators such as RSI, MACD, Bollinger Bands, our model detects if there is a statistical rarity in the current combination of values in the indicators relative to historical data points. A simple example – if RSI is 75, and only 2% of the time the RSI is higher than 75 historically, then our model would flag this as a statistical rarity based on a 2% percentile. After determining the percentile for each indicator, the model calculates the aggregate statistical rarity. If significant, the model calculates the forward looking returns and % of the time positive, and determine if there is a buy signal.

As an illustration, we went long Leucadia National Corp (NYSE:LUK) on 2016/11/03 based on a statistical rarity signal and returned 25% in 1 month.

(click to enlarge)Sample Statistical Rarity Buy Signal - LUK (2016/11/03)

The buy signal was triggered when the model detected a statistical rarity on the combination of Lower Bollinger Band < 0 and Choppy Index > 60, which occurred on 2016/11/03. The model found 4 other occurrences matching the criteria since 2000, and 100% of the time the 20-day forward returns were positive with an average of +7%. Hence, the model gave a buy signal on positive expectancy.

(click to enlarge)Sample Statistical Rarity Buy Signal Explanation - LUK (2016/11/03)

2) Statistical Pattern Recognition

Conceptually similar to our Statistical Rarity signal, the model detects if current price pattern has positive expectancy by matching vs. historical occurrences. The pattern is combination of candlestick (high-low-close-open combo, e.g. doji candle: open=~close ), standard technical oscillators such as RSI, and proprietary trend indicators. For example, we went long The Mosaic Company (NYSE:MOS) on November 3 based on the statistical pattern recognition method.

Sample Statistical Pattern Recognition Buy Signal - MOS (2016/11/03)

The model found 3 occurrences that matched the pattern on November 3rd, all of which had positive return within 20 days with an average of +19%, which resulted in a buy signal and returned 20% in a month.

MOS Statistical Pattern Matches

While not all trading signals would work out as expected as in the above examples, historically our signals are over 60% of the time positive with returns skewed to the right. Our objective is to filter out the day-to-day noise and find high-probability opportunities in the market regardless of the market environment with a statistical edge.

Quant Trade Signal PnL Distribution

In addition, our signals have stop losses between -5-10%, automatically adjusted based on how far the signals diverge from our statistical projections. In the long-run, our system has a positive expectancy and has outperformed S&P 500 (NYSEARCA:SPY) every year since 2008 based on backtesting.

Click here for more information and try our trade signals out free for 7 days.

2016 Summary

On the year, our portfolio was up 26% vs. 11% in S&P 500 (total return). In 2017, we will be posting weekly and monthly updates.

Monthly Performance Breakdown

PERIOD PORTFOLIO RETURN INDEX RETURN
2016 26.41% 11.34%
2016-12 0.81% 1.42%
2016-11 4.84% 3.62%
2016-10 -3.23% -1.75%
2016-09 2.87% -0.5%
2016-08 1.85% 0.12%
2016-07 6.98% 3.58%
2016-06 0.93% -0.17%
2016-05 1.96% 1.69%
2016-04 3.82% 0.39%
2016-03 10.26% 6.1%
2016-02 2.98% -0.19%
2016-01 -7.24% -5.11%

Current positions as of 2016/12/30

SYMBOL NAME SECTOR INITIATE DATE INITIATE PRICE CURRENT PRICE TOTAL PNL % DAILY PNL %
Long 12 Holdings 2.23% -0.08%
JNJ Johnson & Johnson Health Care 2016-12-06 112.06 115.21 2.81% -0.24%
UDR UDR Inc Financials 2016-12-06 33.50 36.48 8.9% 1.84%
MSFT Microsoft Information Technology 2016-12-06 59.95 62.17 3.69% -1.17%
GRMN Garmin Ltd. Consumer Discretionary 2016-12-14 48.89 48.49 -0.82% -1.06%
WMB Williams Cos. Energy 2016-12-15 29.12 31.14 6.94% 0.42%
GLW Corning Inc. Industrials 2016-12-15 24.24 24.27 0.12% -0.7%
PPL PPL Corp. Utilities 2016-12-20 34.50 34.05 -1.3% -0.61%
ALXN Alexion Pharmaceuticals Health Care 2016-12-20 116.72 122.35 4.82% -1.04%
HUM Humana Inc. Health Care 2016-12-22 202.93 204.03 0.54% 0.55%
LKQ LKQ Corporation Consumer Discretionary 2016-12-28 30.88 30.65 -0.74% -0.74%
GGP General Growth Properties Inc. Financials 2016-12-28 24.41 24.98 2.34% 1.92%
EOG EOG Resources Energy 2016-12-28 101.65 101.10 -0.54% -0.18%

Dec 2016 Exited Trades

SYMBOL NAME SECTOR SIGNAL TYPE INITIATE DATE INITIATE PRICE EXIT DATE EXIT PRICE TOTAL PNL %
43 Trades Avg 3.42%
LUK Leucadia National Corp. Financials Stat Rarity 2016-11-03 18.10 2016-12-01 22.77 25.8%
MOS The Mosaic Company Materials Stat Pattern 2016-11-03 24.15 2016-12-01 29.09 20.46%
XYL Xylem Inc. Industrials Stat Rarity 2016-11-03 47.24 2016-12-01 51.81 9.67%
ENDP Endo International Health Care Stat Rarity 2016-11-07 15.68 2016-12-05 15.87 1.18%
GT Goodyear Tire & Rubber Consumer Discretionary Stat Pattern 2016-11-07 28.08 2016-12-05 30.14 7.34%
MUR Murphy Oil Energy Stat Pattern 2016-11-07 26.77 2016-12-05 33.25 24.21%
TRV The Travelers Companies Inc. Financials Stat Rarity 2016-11-07 105.36 2016-12-05 115.87 9.98%
AME Ametek Industrials Stat Rarity 2016-11-08 45.41 2016-12-06 49.52 9.05%
FBHS Fortune Brands Home & Security Industrials Stat Rarity 2016-11-08 54.39 2016-12-06 55.15 1.4%
PXD Pioneer Natural Resources Energy Stat Pattern 2016-11-08 175.04 2016-12-06 184.77 5.56%
DAL Delta Air Lines Industrials Stat Pattern 2016-11-09 45.25 2016-12-07 51.10 12.93%
ORLY OReilly Automotive Consumer Discretionary Stat Rarity 2016-11-09 264.15 2016-12-07 285.20 7.97%
VAR Varian Medical Systems Health Care Stat Rarity 2016-11-09 88.51 2016-12-07 90.22 1.93%
D Dominion Resources Utilities Stat Rarity 2016-11-10 71.13 2016-12-08 73.50 3.33%
ILMN Illumina Inc Health Care Stat Rarity 2016-11-11 137.71 2016-12-01 127.72 -7.25%
AEP American Electric Power Utilities Stat Rarity 2016-11-11 59.99 2016-12-09 60.99 1.67%
AMZN Amazon.com Inc Consumer Discretionary Stat Pattern 2016-11-11 739.01 2016-12-09 768.66 4.01%
EOG EOG Resources Energy Stat Rarity 2016-11-11 91.41 2016-12-09 106.45 16.45%
SLB Schlumberger Ltd. Energy Stat Pattern 2016-11-11 78.66 2016-12-09 84.78 7.78%
MAS Masco Corp. Industrials Stat Rarity 2016-11-15 31.93 2016-12-01 30.33 -5.01%
CF CF Industries Holdings Inc Materials Stat Pattern 2016-11-15 27.80 2016-12-13 28.40 2.17%
WMB Williams Cos. Energy Stat Pattern 2016-11-16 30.29 2016-12-14 29.22 -3.53%
SBUX Starbucks Corp. Consumer Discretionary Stat Pattern 2016-11-17 55.85 2016-12-15 57.71 3.33%
WAT Waters Corporation Health Care Stat Rarity 2016-11-17 138.85 2016-12-15 137.50 -0.97%
ATVI Activision Blizzard Information Technology Stat Rarity 2016-11-18 38.39 2016-12-02 35.71 -6.98%
TRIP TripAdvisor Consumer Discretionary Stat Rarity 2016-11-18 50.79 2016-12-02 46.46 -8.53%
WY Weyerhaeuser Corp. Financials Stat Rarity 2016-11-18 31.13 2016-12-16 30.72 -1.32%
ETR Entergy Corp. Utilities Stat Rarity 2016-11-21 68.42 2016-12-19 73.18 6.96%
JNPR Juniper Networks Information Technology Stat Pattern 2016-11-21 26.36 2016-12-19 28.54 8.27%
BSX Boston Scientific Health Care Stat Rarity 2016-11-22 20.84 2016-12-20 21.53 3.31%
IPG Interpublic Group Consumer Discretionary Stat Pattern 2016-11-22 24.31 2016-12-20 23.71 -2.47%
TMO Thermo Fisher Scientific Health Care Stat Rarity 2016-11-22 143.00 2016-12-20 141.80 -0.84%
VTR Ventas Inc Financials Stat Rarity 2016-11-22 60.56 2016-12-20 61.93 2.26%
MDT Medtronic plc Health Care Stat Rarity 2016-11-25 75.52 2016-12-21 71.58 -5.22%
COP ConocoPhillips Energy Stat Pattern 2016-11-25 45.75 2016-12-22 51.54 12.66%
JNJ Johnson & Johnson Health Care Stat Pattern 2016-11-25 114.13 2016-12-22 115.44 1.15%
MON Monsanto Co. Materials Stat Pattern 2016-11-29 102.39 2016-12-27 105.69 3.22%
LYB LyondellBasell Materials Stat Pattern 2016-12-01 91.18 2016-12-28 86.38 -5.26%
RCL Royal Caribbean Cruises Ltd Consumer Discretionary Stat Pattern 2016-12-01 79.30 2016-12-29 82.96 4.62%
STT State Street Corp. Financials Stat Pattern 2016-12-01 80.39 2016-12-29 77.66 -3.4%
CHK Chesapeake Energy Energy Stat Pattern 2016-12-02 7.23 2016-12-30 7.02 -2.9%
VRX Valeant Pharmaceuticals International, Inc. Health Care Stat Rarity 2016-12-09 15.46 2016-12-15 13.60 -12.03%
VRTX Vertex Pharmaceuticals Inc Health Care Stat Pattern 2016-12-14 78.33 2016-12-30 73.67 -5.95%
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