Nowcasting as a Measure for Stock Picking Periods

AKAnomics leverages macro data to assess company revenues through a high frequency Nowcasting methodology. Clients ask if our assessments can go beyond equities into macro decision-making. We show that our Nowcasting approach can identify periods good for active stock picking.

On a weekly basis, AKAnomics creates revenue estimates for ~120 companies in the Industrials, Materials, and Consumer Discretionary sectors, using the sum-total of the world’s macroeconomic data. We hence have a measure of the revenue disconnect from consensus for each such company. The % of companies that are likely to either beat or miss revenues, is hence a fundamental measure of “dispersion” among the companies we track.

The chart below shows a positive relationship between “dispersion” and forward weekly returns. In spite of the low slope of the relationship in the graph, we see this positive relationship as strong, given the very high volatility of the weekly returns, with about a third of the weekly returns explained by dispersion. In other words, AKAnomics dispersion can be thought of as a measure for fundamental volatility (as opposed to traditional stock volatility).

The historical period for this analysis is from 2015 till last quarter, and based on a paper portfolio of the 120 companies we track (total market cap of ~$3T). Net returns are the forward 1-week returns relative to US Industrials sector (XLI Index) for a long/short portfolio based on our beat/miss signals for the week. A company in any week is either long/neutral/short based upon whether our AKAnomics signals indicate a revenue beat/neutral/miss.

Our Quantamental signals have proven effective across various markets and conditions, helping investors incorporate previously underutilized, granular macroeconomic information into their trading strategies. As the number of tracked securities increases, we expect the positive relationship between dispersion and returns to become more robust.