Frequently Asked Questions

Question:
Stock Analysis is typically divided into two categories: Fundamental Analysis and Technical Analysis. So what exactly is Quantitative Analysis?

Answer:
Quantitative Analysis is the analysis of data using applied mathematics and statistics such as Times Series Analysis, Regression & Correlation, Probability, and Statistical Inference & Calculus.

Fundamental and Technical Analysis can also be part of Quantitative Analysis (QA).

The Quant (a person who performs Quantitative Analysis) believes that for all analysis to be a viable decision-support tool, it should be quantitative.   There is no room for subjective interpretation.    Even in a world of uncertainty that cannot be reduced to yes or no or black and white, uncertainty can still be expressed in probabilistic terms.

QA takes the emotion out of your investment decisions by analyzing all the variables and determining the buy/sell criteria.    In summary, we search for equities with expanding earnings that are oversold on a short term basis and have a high long-term momentum to value ratio.

Question:
If your indicators show a potential retraction in the market, why not go to 100% Cash instead of Passive  Investing?  Exactly what is Passive vs Active Investing?

Answer:
At Alpha Optimization, we thoroughly back-test all strategies before implementing them into a test portfolio.   Once our approach and test portfolio have been time-tested and we are convinced of it’s validity, we proceed with implementing the strategy into risk-appropriate client portfolios.

Why not 100% cash?     We have tried this approach in the past only to realize that 100% cash hurts performance.   No one predicts the future and no one can know when the market will turn in your favor.   Going to cash requires two decisions: when to exit to cash and secondly when to buy back in.   Two very hard decisions.

For us, Active Investing is aggressively buying individual stocks from our Candidate Lists. Passive Investing is selling individual stocks and aggressively buying ETF’s.  

When to be Passive vs Active is based on our Oscillator.    Sometimes our Oscillator may indicate a combination of both approaches.    Individual stock selections are based on our Asset Allocation Model.

Question:
Your Candidate Lists seem to have a large number of foreign stocks, including China, Brazil, and India. Why is this?

Answer:
At Alpha Optimization, we screen all stocks that are traded on US exchanges including ADR’s.  We distill our results though a series of quantitative measures and formulas to produce the stock picks on our Candidate Lists.  We look for stocks that are oversold on a short term basis, but continue to exhibit strong long term momentum.  Quantitative Analysis evaluates the numbers without emotion or feelings.

For a non-quantitative answer, consider this: a number of foreign stocks that make it onto our Candidate Lists and Portfolios are large dominant players in markets that are growing at many times the growth rate of the United States.  The economy’s of countries like Brazil with fast expanding GDP, budget surpluses, and low debt make investing sense.  Currency can also help your return.  Solid economies tend to lead to strong currencies which in turn can further enhance your US dollar return.

Question: What is the Alpha Optimization Program’s Sell Discipline?

Answer:
We employ the following sell discipline:
1.            If the stock has a positive alpha when we purchase it, an initial stop of 10% is set.
2.             If the stock has a negative alpha when we purchase it, we set the initial stop at 5%.
3.            Once a stock achieves a 5% profit, we raise the stop to a 5% loss.
4.            For each incremental gain of 5% in the stock, the trailing stop is increased by 5%.

Don’t forget to protect principal while making money.

Question:
How does the Alpha Optimization Program screen for Socially Responsible companies?

Answer:
Some of the criteria for a company to fail Socially Responsible screening are:

Question:
What  Criteria  Does  The  Alpha  Optimization  Program  Use  To  Select  Stocks?

Answer:
We perform Quantitative Analysis in an attempt to discover stocks that exhibit some or all of the following criteria:

At Alpha Optimization, we search for equities with expanding earnings that are oversold on a short term basis and have a high long-term momentum to value ratio.

Question:
How Do I Interpret Your Oscillator?

Answer:
Our Oscillator is a 100 Day chart of the Z-Score that shows the number of Standard Deviations the S&P 500 is above or below its 100-day Moving Average.   A reading of +3 indicates a market that is extremely overbought and therefore at risk of a sell-off.   A reading of –3 indicates a market that is extremely oversold and potentially in a position to rally.   For ideal market conditions, we would like the chart above zero and ideally between 1 and 2 with around 1.5 being optimal.   No one can predict the market but typically readings over 2 cannot be sustained for long without a correction.

Question:
What does the 50 Day, 100 Day, 50 Week, and 100 Week fields on your Candidate List mean?

Answer:
The 50 Day field is the change in price for the past 50 business days for the stock indicated. The 100 Day field is the change in price for the past 100 business days, and so on.              
             
We use these performance INDICATORS as an signal of money flow.  

Positive money flow in both the short and long term indicates institutional interest in the stock as well as upside momentum potential.    Negative flow in the Short-Term (50 Day) can indicate an oversold condition. Our goal is to search for equities with expanding earnings that are oversold on a short term basis and have a high long-term momentum to value ratio.