The Value of Revenue Nowcasting in Systematic Strategies

AKAnomics focuses on Nowcasting current quarter revenues of companies, especially in cyclical industries like US Industrials and Materials. This naturally raises the question, if “current quarter revenues” are relevant for systematic strategies? To answer this question, we consider the hypothetical scenario of having perfect foresight of current quarter revenues. A simple dollar-neutral long/short portfolio comprising of the largest revenue disconnects from consensus, hedged with XLI and rebalanced weekly, shows a Sharpe ratio of approximately 2.2 and annual returns of about 7 percent starting from 2015 (see graph below). This shows that having good estimates for “current quarter revenues” can offer a strong signal for systematic strategies.

Given that companies in the US Industrials and Materials sectors operate in the B2B space, they leave limited footprint of their business interactions than companies operating in the B2C space where credit card, email, browsing, and location data offer a plethora of real-time information to investors. As such, there are limited systematic approaches to assess and estimate company revenues in the B2B space. AKAnomics Inc. addresses this white space by using continuously updated global macroeconomic data to estimate revenues (Nowcasting).  The methodology has proven effective, with hit rates (being on the right side of consensus) above 70 percent upon identifying consensus surprises, and similar strategies as described above offering Sharpe between 1-2 based on different parameter choices.

If you are a quant, or long/short equity analyst, and would like to learn more, please contact us at info@akanomics.com