What You Have Missed by Not Buying Our Stocklist for just $5 – Part II: Statistical significance

Two months ago we suggested you to buy a list of stocks, carefully selected from SP500 index on both fundamental and technical criteria. One month later we have published the results: though our stocklist has clearly beaten SPY there were no evidences of formal statistical significance. Now there are. Moreover, you have an opportunity to buy our next stockpicking report just for $10.

In our previous ex-post analysis, published one month ago, we have shown that our stock list would have brought you 3% return, whereas SPY stagnated around the zero. However, neither the t-test nor Kolmogorov-Smirnov test have shown the statistical significance of our approach, meaning that the result might have been accidental. Now we can prove such significance.

Both SPY and a portfolio of equally weighted SP500 stocks would bring about 3% during the last two months, whereas our portfolio would bring 5.5%.

Stock Price 03.08.2018 P/L Since 01.06.2016
VIACOM B 28,93 7,5%
BIOGEN INC. 342,499 15,2%
ACUITY BRANDS INC. 135,349 13,8%
ADVANCE AUTO PARTS 143,808 12,1%
ALPHABET INC A 1232,155 8,7%
REGENERON PHARMACEUTICALS 392,364 27,1%
APACHE CORP 44,891 15,0%
GILEAD SCIENCES DL-,001 77,553 13,6%
MACYS 38,724 9,0%
PROCTER GAMBLE 81,984 11,3%
KIMCO REALTY CORP 16,981 9,7%
BEST BUY CO INC 75,647 9,5%
DISNEY (WALT) CO. 113,379 14,1%
ALLIANCE DATA SYSTEMS 226,235 7,1%
BRISTOL MEYERS 58,761 10,7%
WELLS FARGO 58,527 7,1%
ALEXION PHARMAC. 123,442 4,0%
PPG INDUSTRIES 110,298 7,5%
MOLSON COORS BREWING COMPANY 68,823 11,0%
CENTURYLINK 18,732 5,2%
PG&E 42,701 0,8%
THE SOUTHERN COMPANY 48,454 9,2%
WALGREENS BOOTS ALLIANCE CORP. 66,49 5,2%
CBS CORP. 53,131 4,1%
ALASKA AIR 62,431 2,4%
AT&T INC. 32,104 -1,5%
INVESCO MORTGAGE CAPITAL 16,284 -0,5%
CINCINNATI FIN. 75,083 6,5%
PHILIP MORRIS 86,384 9,8%
APPLE COMPUTER INC. 206,901 8,9%
MATTEL 15,891 1,0%
GENERAL MILLS 46,949 9,7%
CINTAS 205,761 11,5%
INTL BUS. MACH. DL-,20 146,953 3,4%
CIMAREX 93,514 5,8%
GOLDMAN SACHS BDC INC. 21,75 5,4%
INTERCONT. EXCHANGE 72,304 0,1%
COLGATE PALMOLIV 67,124 6,6%
NASDAQ INC. 91,11 -1,3%
GGP INC. 21,321 4,3%
VENTAS 57,637 5,0%
SNAP INC 12,676 10,1%
DUKE ENERGY CORP. (NEW) 80,904 6,0%
FRANKLIN RESOURCES 32,073 -6,0%
PPL 28,821 6,6%
CARDINAL HEALTH 49,966 -5,3%
APPLIED MATERIALS INC. 48,568 -6,9%
AMERICAN AIRLINES 38,257 -12,4%
XEROX CORP. REGISTERED SHARES DL 1 25,903 -5,0%
INTEL CORP. DL-,001 49,339 -13,2%
WHIRLPOOL CORP 134,035 -7,3%

Again we compare the the density of stock returns from our list with the density of returns of all SP500 stocks (5 outliers were removed from both sides).

Further we run KS-test and t-test and obtain in both cases the 95% significance (by KS-Test even the 99% significance but one must be careful because the tested samples are not disjoint).
ks.test(x$rets, sort(juneRets)[5:500])

Two-sample Kolmogorov-Smirnov test

data: x$rets and sort(juneRets)[5:500]
D = 0.24016, p-value = 0.009646
alternative hypothesis: two-sided

Warnmeldung:
In ks.test(x$rets, sort(juneRets)[5:500]) :
im Falle von Bindungen sind die p-Werte approximativ



t.test(x$rets, sort(juneRets)[5:500])

Welch Two Sample t-test

data: x$rets and sort(juneRets)[5:500]
t = 2.0184, df = 61.769, p-value = 0.0479
alternative hypothesis: true difference in means is not equal to 0
95 percent confidence interval:
0.0002113524 0.0440392532
sample estimates:
mean of x mean of y
0.05533333 0.03320803

So you have seen that the outperformance was not an accident! Does it guarantee that our stock picking method will outperform the SPY in future? Of course not! However, it likely will, since we carefully select value-stocks with low P/E coefficients but high profits and we pay attention to trends and support/resistance level. Last but not least we prefer the stocks with low volatilities and correlations. All these factor should have provide a little bit of excess return. You are highly encouraged to check by means of our simulator what "a little bit" higher return (and lower volatility) means over the long term.

E.g. check 6% return and 20% vs. 7% return and 15% volatility over 10 years.
Are you convinced now? Then buy our next report for just $10 (Add to basket -> View basket -> CheckOut with PayPal).
And if still not convinced, have a look at the gallery of stock charts from our previous list.


Like this post and wanna learn more? Have a look at Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students

FinViz - an advanced stock screener (both for technical and fundamental traders)

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