Stocks are down this morning, but our model sees greater edge or alpha from long positions

Good morning, this is Jeffrey Cohen, President of US Advanced Computing Infrastructure, Inc.

The top stocks in our model have a larger edge than they did a few days ago. The edge is significantly higher.

Why?  Let's look at the details:
1. The best stocks in our model have a better CQNS score. This is driven by either higher expected returns, higher relative returns, and/or lower variance. What we see is lower all-stock variance for a portfolio of 3,010 stocks held evenly. This is the lowest variance we have seen, likely ever, at a level of 4.0 x 10-5. This is based on a power log (base 10) for the prior 253 trading days. If the 'best' long stocks have better scores, then portfolios (of multiple stocks) are currently better too.

2. The risk-free rate of return is higher by 0.002, so not very much, as the short-rates we use to set this are largely unchanged. You likely noticed the 10-year US Treasury yield up to 4.5%, but the shorter-term debt (1-month to 6-months) is largely unchanged. The market expected return to risk is up to 8.40% based on recent gains in the US equity indices. Expected future market returns are up to 15.65% over the next year.

3. The model is picking from 5 to 7 stocks in the long portfolio. This is consistent over the past few weeks, as there is advantage of finding stocks that zig and zag together, lowering overall portfolio risk.

4. The edge is higher.  We see 31 ticks of edge or alpha over the $SPY S&P 500 Equity Index ETF.

This does not mean you will make money by holding the long portfolio because the overall market may fall. However, you would have a better risk-return positioning than holding the $SPY. We suggest you hedge the risk of the overall market with either the equity index, or using the 'worst 3' short positions our model suggests. This is how we manage our CQNS portfolio for clients.

​GLTA