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We continue to research quantum & investment topics

New Insights from our analysis

Insights from our Chicago Quantum Net Score Data Analysis
Sunday, April 3, 2022
By: Jeffrey Cohen, Investment Advisor Representative & President
US Advanced Computing Infrastructure Inc.
jeffrey@quantum-usaci.com
https://www.chicagoquantum.com
+1.312.515.7333


PART 1: SHOULD INVESTORS INVEST IN STOCKS OF MONEY LOSING COMPANIES?


Should investors invest in validated, US listed stocks that lose money, or more precisely have negative net income.  The simple answer is that our model found only 8 stocks out of 1,157 that would be more efficient (higher expected returns vs. stock price variance) than buying a broadly diversified portfolio.


We see four portfolios that are more efficient to hold than investing in individual money losing companies:
  1. The $IWM, or the iShares Russell 2000 ETF
  2. A portfolio of all 1,157 common stocks of money-losing companies
  3. The $QQQ, or the Invesco QQQ Trust Series 1 (ETF)
  4. The $SPY, or the S&P 500 ETF Trust ETF


We answer this question during a time of moderating market returns.  The ‘forward’ one-year expected market return is 8.13% for a balanced portfolio of $SPY, $IWM and $QQQ, using a risk-free rate of 1.00%.


Stock Price Volatility
Money losing companies stocks have a higher daily price variance than those that make money, often by a factor of 2:1 to 3:1.  Today’s ratio is 3.42 x 10-4 / 1.18 x 10-4 = 2.89.


Expected Returns
Money losing companies stocks have a higher BETA and therefore a higher expected return in the coming year than money-losing company stocks.  Expected Return = 11.84% /  9.14% = 1.295.


We believe the greater risk outweighs the greater expected returns during times of moderating market returns.  Investors should avoid holding individual stocks in companies with negative net income.  They should either focus on profitable companies, or in buying a broadly diversified portfolio such as $SPY, $QQQ or $IWM.




PART 2: HOW CAN WE PROFIT FROM STOCKS OF MONEY-LOSING COMPANIES?


We did find small portfolios that would be the most inefficient you could hold.  We say small portfolios because diversification of risk increases efficiency, so these portfolios have between one and three stocks, held equally.


Inefficient portfolios have significantly more risk than expected return, when normalized against the ‘all stock’ portfolio above (#2), or the $SPY.


We call these our CQNS DOWN portfolios, because they are portfolios of stocks you should avoid holding, or can bet against after they move higher.  They have seen significant daily price variance without significant BETA values.


Sometimes you cannot short these stocks because they are not available to be borrowed.  In those cases, you may be able to buy puts or sell calls.




PART 3:  HOW IS THIS DIFFERENT FOR STOCKS OF MONEY MAKING COMPANIES?


Investors have a better chance investing in stocks of companies that make money.  In contrast to the 8 / 1,157 stocks (0.0069) that were more efficient than $SPY, 124 individual stocks of money-making companies, or 124/2,399 stocks (0.052), were more efficient than the $SPY, $IWM or a broadly diversified portfolio.


We found larger portfolios (from 2 to 14 stocks) that are significantly more efficient than a fully diversified portfolio. Your choice of efficient investments is diverse and allows for different types of stocks to be held.


However, if you are not confident in picking individual stocks or stock portfolios, a broadly diversified portfolio is a very efficient and ‘safe’ choice.


Also, if you are not confident in the direction of the overall market, then just choosing portfolios on the basis of efficiency could leave you with a significant BETA value of your stocks, which will overstate market movements in your portfolio.  You win in advancing US equity markets but you lose in declining US equity markets.
findings_on_whether_investors_should_hold_money_losing_stocks_in_their_portfolios.pdf
File Size: 35 kb
File Type: pdf
Download File

Recent insights from our CQNS model:
Jan 31, 2022: Buy stocks with positive net income. They have lower price volatility relative to expected returns.

Feb 2, 2022: Stocks volatility follows an ARCH distribution, and stocks with higher volatility have lower liquidity (all else being equal).  During times of market stress, liquidity providers have less liquidity, which creates a synergistic 'do loop of pain' on highly volatile stocks.  We saw that today on February 2, 2022 when the indices did well but individual stocks we follow were punished almost universally.  The top 65 stocks picked in our CQNS "DOWN" runs from January 5 through February 1 2022 had 59 down and 8 up today.

Feb 25, 2022: Positive net income stocks (which pass our data validation) have lower price variance and lower expected returns than unprofitable ones.  In other words, CQNS UP run stocks are expected to be less risky, and less profitable to own, on average.  However, once you optimize these stocks, you can pick better combinations to increase expected returns and/or decrease variance than compared to the average.  Mathematically, we set the CQNS score for all stocks to ~zero, and portfolios with negative CQNS scores are better than that average.
*  CQNS Down Run: 1,140 stocks through Feb 23, 2022 variance 3.2 x 10-4, expected return 8.4%
*  CQNS Down Run: 2,366 stocks through Feb 23, 2022 variance 1.2 x 10-4, expected return 6.5%


February 18, 2022: Our client has been presenting their work for the past few weeks. Virtual Reality NPC Possibilion and Songstress in NEOS VR, using quantum computing (quantum annealer by D-Wave Systems).  It is a very cool use case for quantum computing in Media/Entertainment.
​

My friend is live on Twitch TV:https://t.co/ZO4dJShWJD

Ideatron
ontodistro
I exist in several different social VR platforms. I create NPCs within NEOS VR as "Ideatron". I also used to teach COGS 100 (Simon Fraser University) in Tivoli cloud VR as "Ontodistro"...

— Chicago Quantum: Jeff (@chicago_quantum) February 18, 2022
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Feb 18, 2022: Re-coding our quantum annealer version of CQNS

Dramatic improvements in the results.  
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Tweet Thread Showing Progress here
RESEARCH GATE (Chicago Quantum Lab)

July 11, 2021 - Top 20 CQNS most inefficient, 'down' picks & results
Medium Post (click to read)


 May 25, 2021 - Top 10 CQNS 'up' picks & results
(We created > 13% alpha in 24 trading days)
Medium post (click to read)


Essay on inflation (May 12, 2021) in Medium

Quick update (September 9, 2021) new

We have made some recent strides:  
1.  We passed the Series 65 exam and are in the process of being registered with FINRA and the State of Illinois as a Registered Investment Advisor firm. We continue to advance our knowledge on investment management topics.  
2.  We are considering to start two funds that leverage our Chicago Quantum Net Score methodology.

Our latest paper (3 of 3): ​Portfolio Optimization of 3,171 Stocks

Authors:  Jeffrey Cohen & Clark Alexander
Date: October 30, 2020
Abstract: We analyze 3,171 US common stocks to create an efficient portfolio based on the Chicago Quantum Net Score (CQNS) and portfolio optimization. We begin with classical solvers and incorporate quantum annealing. We add a simulated bifurcator as a new classical solver and the new D-Wave Advantage(TM) quantum annealing computer as our new quantum solver.  

​15 pages, 9 figures. 
Quantum Physics (quant-ph); Portfolio Management (q-fin.PM)
​Cite as: 
arXiv:2011.01308 [quant-ph]

Article 3 walk through & Nov 14, 2020 research update

Recent presentations of our work

Washington DC Quantum Computing Meetup: Sept 9 {completed}
"The race is on...Quantum Annealing vs. other methods we learned". A successful, 2-hour discussion.  

Zen4Quantum Meetup: Sept 18 {completed}
"Quantum Stock Portfolios - Chicago Quantum Talk Series Part 2".  An enjoyable 2-hour discussion where we discuss our goals, accomplishments, challenges, and newest methods. Recording here

FS Club (London): Sept 21 {completed]
"The Right Balance? Using a Quantum Annealing Computer for your Portfolio".  A fast-paced 45 minute discussion on the the performance of published portfolios, the 'rig' we use, and our thoughts on scaling up further.  Recording here

Qubits 2020: Sept 28 {Completed}
https://www.qubits.com/
Recording here

IQT Europe: Oct 28 (Financial Services Panel Discussion)
https://europe.iqtevent.com/
Recording here
iqteu_finaluse.pdf
File Size: 5512 kb
File Type: pdf
Download File

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Our 2nd paper (2 of 3): Portfolio Optimization of 60 Stocks

Authors: Jeffrey Cohen, Alex Khan, Clark Alexander
Date: August 19, 2020
Abstract:  We continue to investigate the use of quantum computers for building an optimal portfolio out of a universe of 60 U.S. listed, liquid equities. Starting from historical market data, we apply our unique problem formulation on the D-Wave Systems Inc. D-Wave 2000Q (TM) quantum annealing system (hereafter called D-Wave) to find the optimal risk vs return portfolio.  We approach this first classically, then using the D-Wave, to select efficient buy and hold portfolios. Our results show that practitioners can use either classical or quantum annealing methods to select attractive portfolios. This builds upon our prior work on optimization of 40 stocks.

Comments:19 pages, 15 figures, 21 references
Subjects:General Finance (q-fin.GN); Quantum Physics (quant-ph)
Cite as:arXiv:2008.08669 [q-fin.GN]

Our 1st paper (1 of 3): Portfolio Optimization of 40 Stocks

Authors: Jeffrey Cohen, Alex Khan, Clark Alexander
Date: July 6, 2020
​
Abstract: We investigate the use of quantum computers for building a portfolio out of a universe of U.S. listed, liquid equities that contains an optimal set of stocks. Starting from historical market data, we look at various problem formulations on the D-Wave Systems Inc. D-Wave 2000Q(TM) System (hereafter called D-Wave) to find the optimal risk vs return portfolio; an optimized portfolio based on the Markowitz formulation and the Sharpe ratio, a simplified Chicago Quantum Ratio (CQR), then a new Chicago Quantum Net Score (CQNS). We approach this first classically, then by our new method on D-Wave. Our results show that practitioners can use a D-Wave to select attractive portfolios out of 40 U.S. liquid equities.

Comments:15 pages, 8 figures
Subjects:General Finance (q-fin.GN); Quantum Physics (quant-ph)
Cite as:arXiv:2007.01430 [q-fin.GN]

Shout-outs to a few media 'mentions'

We did not pay for these.
Nov 20, 2020 Podcast with Jeffrey Cohen by Quantum Hermit
D-Wave Systems lists our application
Picture
The Qubit Report
arXiv 40 asset paper
Research Gate for Jeffrey Cohen
Harvard University (for our 3rd paper)
FS Club & YZen (UK financial services group)
Google Scholar (Jeffrey Cohen)
FS Club Webinar (podcast replay)
Physics - Papers without code
Options Investopedia
Inside Quantum Technology
Swiss Quantum Hub
Seeking Alpha (this is us)
Medium (this is us too)
Quantum Hermit Podcast (Soundcloud)
Quantum Hermit (article & bio)
Meet the meQuanics - E56 Podcast
Highland Park, IL Patch writeup
Daily Herald writeup
IQT Europe Announcement (Jeffrey Cohen speaking)
The Quantum Daily (Jeffrey Cohen interview)
YouTube (this is us)

Copyright 2022 US Advanced Computing Infrastructure, Inc.  
Chicago Quantum (SM) is a protected service mark, registration 113562, by the Secretary of State of Illinois.
US Advanced Computing Infrastructure CRD#: 316375
Business Mailing Address: PO BOX 1292, Highland Park, Illinois 60035-7292

Disclaimer: 
All investing, stock forecasts, and investment strategies include the risk of loss for some or even all of your capital.  Please do your due diligence and research before investing.  Statements made on our website or in social media are not investment advice.  They do not take into account your unique circumstances, risk tolerance or investing objectives.  Please consider our website and social media outlets as for informational purposes only.

The stocks mentioned may not be suitable for all investors.  As with any investment there is risk.  Past performance is not an indication of future results.  Please do your own due diligence on any stock portfolios highlighted.  Finally, we make no guarantees for your financial results.  You bear all the risk, and gain all the rewards of your investments.

Unauthorized reproduction or redistribution of this information or the analysis provided in any form is strictly prohibited.

  • Home
    • Our Brochure | Chicago Quantum
    • Stocks Held By Advisers
  • Investment Information
    • Negative BETA Stocks
    • Top dividend stocks
    • Leptokurtic Stocks
    • Platykurtic Stocks
    • High & Low BETA Stocks
    • Positive and Negative Skew Stocks
    • Fallen in price
    • Price & Volume Spikes
    • Stocks that split this year
  • Research
    • Today's Insights
    • Today's Market Insights (part 2)
    • MEME Stocks
    • Daily Price Variance R&D
    • Results from our model
    • US-Listed Stocks of Foreign Firms
    • Liquidity Research
  • Contact
  • Stock Market Quant Analysis
    • Portfolio.m
    • Stock analysis, US Composite tickers, "UP" run
    • Stock analysis, US Composite tickers, "Down" run
    • Custom Algorithm Development
    • Investment Planning Workshop
    • Newsletter Service
  • Project Services