Quant Thematic - Three factor model for stocks filtration

We have tested the three step model for filtration of stocks, which has major essence of rise in delivery pick-up along with accumulation pattern

Delivery Z-Score

The two-week delivery pick up is compared with last three month's delivery pattern. The Z-score is calculated for each and they are ranked accordingly. The higher Z-score indicates higher increase in delivery per unit of risk.

Historical Volatility

Historical volatility suggests the variation in returns. If the standard deviation comes lower, it suggests the lower pattern of historical volatility, which, in a way, suggests the accumulation in the stock. 30 D and 60 D volatility captures this feature and the decline in short term indicator vs. long term suggests the buying interest emerging in the stock.

Frequency distribution of returns

When historical stock returns follow a uniformly distributed pattern that shows accumulation in the stock where the sharp stock downsides frequency is lower and it has been in a narrow range scenario for most of the time. Thus, the mean is concentrated more near the lower price returns.

Stock Picks

1) Glenmark Pharma

Pharma stocks have remained largely range bound in the last three to four months while other sectors took the lead. However, after a round of consolidation, a fresh up move is likely to be seen in pharma stocks. Stocks like Glenmark Pharma are moving out of the long prevailing hurdle near Rs. 460 levels. The price distribution is also suggesting limited downside movement in the stock. The majority of the reading for stock is in the 0-2% range.

From a delivery perspective, the stock saw strong delivery based action recently. After a round of cool-off, fresh delivery buying was evident. It seems there is ongoing accumulation in the stock at every levels. The Z score has also been exhibiting high delivery activity that took place in the stock recently.

2) NTPC

NTPC has remained largely range bound in the last five to six months while heavyweights from the sector took the lead. However, the stock has exhibited strong outperformance compared to its peers. The stock is moving out of the hurdle of Rs. 150 levels. The price distribution is also suggesting limited downward movement in the stock.

From a delivery perspective, the last couple of weeks saw above average delivery as the stock has witnessed strong reversal from Rs. 130 levels. Furthermore, the Z score remained in the positive territory indicating increased delivery volume along with recent upsides suggesting strong hands are accumulating the stock.

For details, click on the link below: Link to the report

Source : Equity Bulls

Keywords

QuantThematicReport NTPC GlenmarkPharma ICICIDirect