A Composite Factor for Profit Growth, Low Turnover, and Stable Trading Activity

Summary

This submission describes a composite stock factor combining three ranked measures: three-year net profit growth, the inverse of summed turnover over five periods, and the inverse of five-period trading-amount variability. The intended profile is high growth with low turnover and comparatively stable trading activity, which the author associates with smaller, less liquid companies. The factor is presented as cross-sectionally monotonic, with higher scores associated with higher returns and lower scores with lower returns, supporting both long and short portfolio use.

The author reports a high information coefficient, a steadily rising cumulative information coefficient, and backtest figures for annualized return, Sharpe ratio, and maximum drawdown. The same account flags portfolio turnover above 20% as undesirable and notes limited liquidity. These are claims from the submission; the document does not provide the underlying test dates, benchmark, transaction-cost treatment, universe construction, or out-of-sample validation. The results therefore do not establish that the factor will retain its performance in live trading.

Key ideas

• The factor combines ranked profit growth, inverse recent turnover, and inverse variability in trading amount.
• Higher factor scores are reported to correspond to higher returns, with lower scores associated with lower returns.
• The submission reports favorable backtest statistics and a rising cumulative information coefficient.
• It also flags high portfolio turnover and liquidity limitations, while omitting key validation details.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.