October 31, 2010 Leave a comment
We’ve been busy this past week here at VectorGrader.com finishing some improvements to the stock rating system that are now live on VectorGrader.com.
The primary change to our stock rating system is the addition of a component that rates a stock relative to other stocks in the same industry. We added this because a considerable number of indicators such as P/B and P/E work better when the ratio is compared to that of other stocks within the same industry. One reason for this is that each industry’s economics are structurally different. Higher growth rates or margins of some industries could justify a higher P/E or P/B.
Not only does comparing stocks relative to their industry perform better, it also does so with a lower risk of underperformance. This is because the signals from industry comparisons will not leave an investor overweight an underperforming industry with a structurally lower P/E or P/B.
We have also improved our algorithm for comparing indicators to their mean. This has created a more even distribution of stocks across the range of possible ratings and makes a stock’s rating more meaningful.
We are also working on some tools to help with stock selection that should be complete in a week or two.
Macro Rating – A score for a stock’s specific sector, region, size, quality, and momentum profile, based on relative valuations and momentum of those factors.
New Stock Screens – Some stock screens to dig down into a particular style of investing.