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This study from Lucena Research shows how to use RavenPack Equity Indicators in conjunction with traditional factors to enhance portfolio returns.

In the study, Lucena Research uses RavenPack Equity Indicators in two strategies. First, Lucena constructs a portfolio by using the RP Indicators together with a 5-day momentum factor and, secondly, it combines them with other factors selected by Machine Learning in the Lucena QuantDesk® platform.

Lucena found that constructing portfolios using sentiment indicators jointly with traditional factors can result in significant outperformance versus the S&P 500 benchmark over their Jan 2005 to Nov 2014 backtesting period. In particular, with machine learning, Lucena finds P/E ratios and moving average crosses to work well with the sentiment indicators, delivering:

an outperformance of 339% against the benchmark over the period

a Sharpe Ratio of 0.83 versus 0.46. 

 

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