#ActiveAllocator develops state of art algorithms to capture different rates of coronacrisis recovery within countries and international equity markets. Here is the general design idea. We naturally also include multiple other proprietary dynamic factor drivers specific to coronavirus trackers, which are not shown here.
The objective is to rank the attractiveness of regional equity markets over a 12-month time frame
- The ranks are based on a composite score
- The composite score is a weighted average of individual ranks for various factors:
- Valuation factors include Forward PE, PEG, Price to Book and Yield Gap
- For each valuation factor we
- Generate for each region a z-score (current level – 15 year historical average / standard deviation over that 15 year period) .
- Rank the regions based on their z-scores, in other words based on how far the current valuation is from the historical norm (for most factors a low score ranks highest, but for Yield Gap a larger number ranks highest)
- Momentum factors include earnings revision breadth and earnings revisions depth. Larger, positive numbers rank highest
- Use different factors and different weights for developed markets and emerging markets