The focus of this book is the historical evidence for bellwether relationships between stocks, in which recent returns on a stock or group of stocks are predictive of where others are heading. There is substantial evidence in analyzing stock data that certain stocks are leading indicators of others. While anecdotal discussion of 'bellwether' stocks is widespread, this book demonstrates that there are consistent and exploitable bellwether effects in a wide range of equities.
This book explains the forces that drive the variability in the stock market and how investors can understand historical relationships and use these relationships to generate higher returns relative to the risk in their portfolios. The book shows how a trader or portfolio manager can quickly generate forward-looking estimates of risk (volatility) that are better than using implied volatility and also selectively filter historical returns to find periods of historical return most similar to the current investing environment for a specific stock. The book provides a conceptual understanding of why markets are somewhat predictable based on the best current understanding in financial research, as well as concrete demonstrations of how certain types of consistent market behavior can provide competitive advantage. There are also extensive examples of the performance of sample portfolios. Along with the specific tools and strategies, the book also provides explanation of basic concepts of risk management and the use of performance metrics and benchmarks for judging investment strategies or historical performance of mutual funds and advisory services. The book includes an appendix that allows for fast estimates of risk and future return for all of the Dow 30 components.
Note: This book is aimed at quantitatively literate traders and portfolio managers.
The author, Geoff Considine, is the founder of Quantext and has consulted extensively on trading and risk management. To read more about Geoff and Quantext, you may want to start here.
