We report kurtosis in our Chicago Quantum Net Score analysis for clients on a daily basis. We analyze the daily stock price changes and we compare then to various normal distribution. We look at kurtosis, or the fourth movement of stock prices, and skewness, which is the third movement. You can think of those statistics as derivatives of stock price changes:
Today, a stock that we reported to be very highly leptokurtic fell around one quarter in value, or around 25%. Over the day, it was still down 21% when we checked. Here is the quote below (source: Yahoo Finance). We consider the list of high kurtosis and low variance stock an 'early warning' list, and that early warning came true today for $TGNA Tegna Inc. This was so interesting that we made a video: Leptokurtic Stocks, Early Warning that came true for one the stock $TGNA of one company Tegna Inc. Here is the video below. Video link What is a leptokurtic stock? A stock with a leptokurtic stock distribution is one where the probability of the next random sampling (e.g., tomorrow’s price change) being a high standard deviation move or outlier is greater than for a stock with a normal distribution. It is like a bell shape curve that is raised off the x-axis, or has more ‘room in the tails.’ For us, we use this as a means to invest in either stock options or to look at stocks to hold in an optimized long portfolio. To that end, we couple our analysis of kurtosis with low variance stocks. These stocks really stand out as seeming low risk, but with a chance to leap. They are unique and fairly rare. There are currently seven of these stocks: Ticker, Kurtosis Score (standard), variance (normalized) ATVI, 5.91, 0.0001110 GIS, 5.21, 0.0002181 HRL, 10.91, 0.0001821 HSY, 5.30, 0.0001910 K, 6.93, 0.0001952 PINC, 6.49, 0.0002068 SJM, 13.32, 0.0002199 We suggest to our clients that they should keep track of stocks with a high kurtosis score for a sense of the safety of the stock. A leptokurtic stock with a low variance normally should not move much, but on occasion it will move much more than its standard deviation suggests in a normal distribution. Today, $TGNA or Tegna, Inc. moved down 21%. This is a huge move when the other leptokurtic and platykurtic stocks with a low variance moved 2% or less, with most moving around 0.5%. In this case, a stock that was called out as being leptokurtic within the past month had its early warning come true. What does this mean for stock market investors? It means that you should know which of your stock positions are highly kurtotic, and consider ways to adjust your portfolio. If you are worried about your stock falling, and it is low variance and leptokurtic, maybe buy a cheap put option? For more information, and for our periodically updated list of leptokurtic stocks, please visit our webpage here. Jeffrey Cohen President, US Advanced Computing Infrastructure, Inc. Illinois Registered Investment Advisor
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Jeffrey CohenFull-time investment advisor and student of the financial markets. Archives
September 2023
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