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David Pinsen
  • on Portfolio Strategy & Asset Allocation
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I founded Launching Innovation, LLC, to bring together developers, designers, and academic finance experts to create easy-to-use tools to solve complex problems for investors.
My company:
Portfolio Armor
My blog:
Steam Catapult
  • Calculating Expected Returns 0 comments
    Feb 19, 2014 2:01 AM | about stocks: UA, FRX, AGN

    Earlier this month, when we introduced Portfolio Armor's new portfolio construction tool ("A New Approach To Portfolio Construction"), I mentioned that the tool uses an analysis of historical returns as well as option market sentiment to calculate expected returns for the approximately 3,000 securities in its universe. This week, one of those expected return calculations turned out to be eerily prescient, so I thought I'd pull back the curtain a bit on it.

    The screen capture below isn't from a public part of the site -- this is from my admin panel, and it shows the 5 names with the highest expected returns as of Monday's close. "Adjusted Exp Return" here is what we refer to simply as "Expected Return" in our hedged portfolio results. The three columns before it are historical return data, and the Adjusted Exp Return column incorporates our adjustments based on option market sentiment. As of Monday's close, the stock with the highest expected return in our universe was Forest Labs (NYSE:FRX), with an expected return of 26% over the next six months.

    (click to enlarge)

    On Tuesday, FRX closed up 27.5% on news that Activis Plc (ACT) would acquire it.

    This is the second time within the past month I've seen one of the top five names on our expected return sort achieve its entire six month expected return in one day -- the previous time was when Under Armour (NYSE:UA) jumped on its earnings release at the end of January. In case this sort of thing happens again, I thought I'd post our current top five names as of Tuesday's close. Here they are:

    (click to enlarge)

    Stocks: UA, FRX, AGN
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