Feb 7, 2021 CQNS Efficient Stock Portfolio Picks (dividend paid & medium risk)
Hello to our readers. Another efficient stock portfolio to publish three days after we ran it (for research & not for a client). We made an important math change, we lowered our annual risk-free rate from 1.0% to 0.6% to reflect what an individual investor could earn. We continue to have trouble with our data validation process (when it works, it works great…but lately it stopped being consistent). We are working this issue, and have removed our full exchange analysis offerings until corrected.
So, what was the run? 3,514 stocks that data validated down to 1,631 stocks that paid a dividend in the prior 12 months. Our first goal is to find an efficient portfolio with 128 stocks (one outcome), then search that portfolio to find the best one.
We use the medium risk setting, ran the model, and selected 127 stocks in an efficient portfolio. We then ran it again and found a few much smaller stock portfolios:
Best that we found: DIN, KOS & SMLP
2nd best: DIN, KOS, SMLP & WY
3rd best: DIN, ENBL, KL, KOS, QEP & SMLP
In addition to the portfolios we found, we also found four stocks with unique characteristics out of the 1,631 analyzed: They were in the 127 stock ‘allstar’ portfolio with positive skewness (>1.25, where 0 is normal), are leptokurtic (>3.25, where 3.0 is normal), and have variance lower than the fully diversified 127 stock portfolio. In other words, they have some positive momentum, the ability to surprise, and are low risk when not surprising.
These unique stocks are CWT, DPZ, LLY and WSO-B.
So, we test their performance (KOS in blue, DIN in red, and SMLP in green) against the market benchmark (SPY in grey), starting at market open on Monday, February 8th. Let’s see how they did.
We see some pretty erratic price movements that are not coordinated between the three stocks. An equally weighted portfolio of these 3 stocks would have been up 3.8% for the first 3 trading days, vs. SPY being up 0.6%, an outperformance of 3.2% which is significant over such a short period of time.
- KOS jumped day 1, fell day 2, then rose day 3: +7.5%
- DIN fell day 1, rose day 2, then flat day 3: +2.3%
- SMLP rose day 1, fell day 2, then rose (slightly) day 3: +1.5%
- SPY was relatively flat and ended up: +0.6%
Disclosure: This is not the first time that these stocks have been picked by the Chicago Quantum Net Score out of dividend paying stocks. We have profitably bought and sold both KOS and SMLP in the past. We currently hold a long position in SMLP due to our fundamental analysis and due diligence, and we will maintain that long position for at least the next 72 hours (and probably much longer). We continue to spend at least 2 hours a day learning more about SMLP.