Quantitative Research
Quantitative analysis is a set of techniques that seeks to understand behavior by using mathematical and statistical modeling, measurement, and research. In Short quantitative analysis aims to represent a given reality in terms of numerical value.
At Merit Stocks we use comprehensive set of quantitative tools and quaint strategies to aid our research driven investment process making it more systematic and evidence based.We seek to understand drivers of the markets by identifying and understanding factors that are rewarded with superior risk-adjusted performance. We are cognisant of the fact that statistical patterns very often occur by chance, so any quantitative indicator we use must be based on convincing economic rationale.
The areas of investment world in which we find quantitative analysis especially helpful are:
- measurement
- performance evaluation
- valuation of financial instrument
- risk management
- predicting real world events
- Timing of buy/sell decisions
In our research quantitative analysis provides us with tools to examine and analyse past, current and anticipated future events. It enables us to more effectively screen the investment universe for potentially profitable opportunities which are then further researched and extensively back tested before being selected for the inclusion into our portfolio.
From the portfolio perspective we look at strategies that exploit number of proven factors:
- Value
- Momentum
- Low volatility
- Quality
Factor analysis methods have been used for decades, with early research attempting to decipher stock returns by identifying underlying investment characteristics. The value factor, for example, was identified as far back as 1934 in a paper called Security Analysis by Graham and Dodd.
A factor-based strategy can be implemented in a number of ways, including using leverage or short selling a fund or index, as is the case with risk premia strategies. The risk premia model targets absolute returns through a basket of long-short investments. An alpha overlay strategy meanwhile helps to diversify a fund by targeting different underlying factors.
