Welcome back to our AlgoTrading Project, today we are going to talk about how you can implement the Model we already explained in the earlier post, we are going to talk about PE (Price/Earning).
Basically today's post is maybe one of our easiest, in fact we won't almost need to operate many calculations and we won't need to apply difficult methods, all we'll need today is just some simple math.
As we said earlier there is not a best way to AlgoTrading, a trading Algorithm in fact, to be investing on a Company in the most efficient way, should also conisider its Health, many companies in fact might have an high value while having low earnings and assets, in this post you'll learn how to select the best companies in a sector, or the worst if you want to bet against them.
The first thing to do is to select the companies of a Sector, to define a Sector we have to choose companies which belong to the same sets as much as possible, for example since we need to examine their earnings the first thing we need to do is to ccheck if they are taxed the same, wich means they should be located in the same nation.
Secondly, as its clear, we should select companies that work in the same fields, in this way, since we will need to calculate the average PE of the sector it is very important we are the most accurate we can.
Thirdly they should have similar business value and be popular stocks so that most of the news and profits will be easely visible and in particular because in this way Insider Trading should be less likely to happen.
Then our next step to compare the PE of each Company with the sector average in order to see the best and the worst. We can implement this Model in a few way, eg. once we do the Sd of the Sector's Values, to see how Spread they are, we are going to run the difference between those Title's PE and the average, the ones with the lowest differences are the most likely to increase in the value, so we can make a list.
It is clear a we said that this is not enough to decide whcih title to invest on, especially if you are planning to set up a day trading Algorithm, but it can reveal very useful if you are not certain on which company bet on in particular if any periodical Company earning declaration is close.
It is clear that this is such an easy procedure that can be performed by hand or a user but as easy as it is it can easly be automated, in fact, once you'll select the companies, it shouldn't take long for you to automate the process of reading their earnings, you can easely do it by importing them from any kind of web page and the following calculations are so easy that we won't even talk about them (because we already explained).
This is it for today! Let us now if you have any question or correction!
Prepare for the next post, the hardest one but also the coolest one!
StatsApplied