Gina Guinasso is a Financial Analyst at I Know First. She graduated from Arizona State University with a bachelor’s degree in Real Estate and University of San Francisco with a Master of Science in Financial Analysis. 

Daily Stock Trading Strategy

Trading Report

This trade report examines one of the successful daily trading strategies of I Know First in more detail. Only the S&P500 stocks universe is considered and the trades selection process is based on the more predictable assets with additional rules applied to the signal. The overall return from January 7th, 2016 to July 15th, 2016 was 42.59% of invested capital using this strategy, while the S&P 500 returned only 8.62% during the same time period. At the same time the annualized volatility was just 2.6% above that of the S&P 500, resulting in a very high Sharpe ratio (see more performance and risk measures here). Using I Know First’s prediction an investor would have out preformed the market by gaining 33.97% more than what the S&P 500 returned. Stocks were selected based on the I Know First Algorithm that signals to either long or short a stock position.

The following graph compares the I Know First returns using this strategy with the benchmark S&P 500 Index.

The following table shows the amount of profitable and losing trades that took place and how many of those positions were long or short as well as the respective hit ratio:

By looking at the table above, one can see that this investing strategy had significantly more long positions, which averaged a slightly higher return, than short positions. A total of 345 securities were traded and on average there were 5.34 trades per security. 56% of the total 1842 trades had positive returns and the overall average trade return was 0.32%.

The following stocks contributed the most to the total portfolio return:

The top five stocks combined explain 31.30% of the overall gain in the portfolio for the half year time period. The top three companies that provided returns are DVN, CNC, and CHK.

Devon Energy Corporation (DVN), an independent energy company, primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids (NGLs) in the United States and Canada. It operates approximately 19,000 wells. The company also offers midstream energy services, including gathering, transmission, processing, fractionation, and marketing to producers of natural gas, NGLs, crude oil, and condensate through its natural gas pipelines, plants, and treatment facilities. Devon Energy Corporation was founded in 1971 and is headquartered in Oklahoma City, Oklahoma.

DVN is selling its 50% stake in the Access pipeline in Western Canada to the Canada Pension Plan Investment Board for $1.1 billion. When this transaction is complete the company will gain $3.2 billion in proceeds. The I Know First Algorithm signaled mostly long positions for DVN and yielded 2% return per trade.

Centene Corporation (CNC) operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs. The company provides its services through primary and specialty care physicians, hospitals, and ancillary providers. Centene Corporation was founded in 1984 and is headquartered in St. Louis, Missouri.

CNC had posted a trailing 12 months earnings of $2.24 per share. The company has seen a change of 29.90% earnings per share this year. Analysts are predicting 18% return for the company next year. Health Net Federal Services, a wholly-owned subsidiary of CNC, entered a contract with TRICARE to become the managed care contractor for the United States military and their families in the Western Region of the country. Expanding their business aims to generate larger amounts of revenue. The I Know First Algorithm signaled almost all long positions in CNC’s prediction, averaging 1.14% per trade.

Chesapeake Energy Corporation (CHK) is a petroleum and natural gas exploration and production company headquartered in Oklahoma City, Oklahoma.

During the first quarter of 2016, which ended 03/03/2016 earnings per share suffered a loss of $0.23 and revenue was $1.953 billion, down from 2015 where it averaged $3.305 billion per quarter with the first quarter in 2015 having in 3.218 billion in revenue. Five CHK trades took place in the first quarter and four trades were done in the second quarter of 2016. The I Know First Algorithm signaled twice as many short positions than long positions, predicting the correct stock price movement in 78% of the trades, which resulted in 3.84% return per trade.

The most frequently traded stocks have been:

Conclusion

This Article presents the daily stock trading results in more detail for a strategy utilizing the short-term predictions of the I Know First Algorithm between the time period of 01/07/2016-07/15/2016. The strategy significantly outperforms the S&P 500 on the risk-adjusted basis (see more performance and risk measures here). We also provided insight to three companies that contributed the highest amount of returns for the portfolio.