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The AgoraOpus Market Opportunity Index is a fully quantitative market trading strategy applied to the S&P 500 index. Quantitative implies that the indicator value is derived from algorithms that are feed public historical information and then based on the implementation give a single output value; No human subjective opinions or bias involved.

Another approach is called AgoraOpus Stock Pick and utilizes the same analytics technology to rank a list of companies before publishing the top 10 picks from this list. The stock pick list (AOSP_US_LAST_FRIDAY_MONTH_1.txt) is published on GitHub and updated after the last friday of each month with more information available in the below blog posts:

Picking stocks from a list is simple enough to understand how to apply. The market opportunity index is slightly more involved. Based on the indicator value given by the opportunity index, ranging from zero to 100, a trading strategy can be applied. One such strategy involves being long if the indicator value is at or above a given value. In the opposite case you’d go short. However, you are free to tweak these setting, and I welcome you to do just that on the AgoraOpus Market Opportunity Index web app.

It’s called an opportunity index because the indicator value signals how much potential there is in the market for price increase. The higher the indicator value the more likely, historically speaking, we are to see the market going up. I say historically speaking because it’s not easy predicting the future, so please make your own assessments and risk management as well.

The indicator is by no means intended to be short-term. We’re talking long-term greedy, with investment decisions often remaining unchanged for a year or more. The key is to react quickly when needed, but if you want to play the high-frequency or short-term game you should look elsewhere.

If you want to read up on how the indicator performed when applied on the S&P 500 during the last few decades, please have a look at the individual articles for the 1980s, 1990s, and 2000s. There’s also further details on how the indicator is applied in addition to a brief intro to how the alpha and beta values are calculated.

There’s a set of parameters you can change on the web app:

  • Start and end date: This limits the time range of displayed data.
  • Indicator long/short point: The point at which we go long (buy) if the indicator value is at or above this value. Similarly, we’ll go short (sell) if the indicator value is below this point.
  • Leverage long: How much to gear the investment when the indicator is at or above the given setting
  • Leverage short: How much to gear the investment when the indicator is below the given setting

There are two graphs and a table on the app page:

  • The top graph show you the indicator value in blue with your indicator long/short point as a horizontal green line.
  • The second graph show the active (blue) and passive (green) index prices over time.
  • The table presents active, passive, and the indicator value, which is what the graphs are based on.

If you look at the gearing options available you realize that you are by no means limited to following the above stated trading strategy. You could for instance set long leverage to 1x, short leverage to zero, and thereby be out-of-the-market if the indicator value is below your set threshold. Or, you could always be in the market, but gear up if the indicator is above a given value. Again, feel free to play around with the settings.

Two statistics are automatically calculated for you: Your alpha and beta relative to the underlying passive (long-only) S&P 500 benchmark. As an example, using 2000-01-01 to 2010-12-31 data and otherwise default parameters (indicator point: 30, long leverage: 2x, short leverage: 0x), you’d get an alpha of almost 16% pa (that’s average yearly log-returns, assuming 250 trading days) with a beta of 0.80.

The published indicator value is re-calculated and updated after market close on Fridays, typically made available during the weekend. Prices are updated daily.

Finally, general notes on what’s being provided:

AgoraOpus Market Opportunity Index by Christian Felde is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. Permissions beyond the scope of this license may be available at http://www.agoraopus.com/license. All information provided “as is” for informational purposes only, not intended for trading purposes or advice. The copyright holder is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are allowed to export indicator values according to the above license, but not allowed to export price information in any form.

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  1. Pingback: A first attempt looking at the whole picture

  2. Pingback: How bad is a big drop? | AgoraOpus

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