Using quantitive investment strategies for selecting the stocks that need to be bought or sold

The fundamental analysis of picking out stocks has long since bee used by investors, mutual funds and insurance companies. This is one of the oldest techniques that are used by them for selecting the stocks that they will place in their portfolios.

An analyst will work and examine various factors that contribute to the performance of the stock. For this reason, the company’s balance sheets, it’s earning and business ratios and the current as well as future business operating conditions will be seen. Based on these findings, the analyst will decide whether the stock should be bought or not.

Now with a number of other investors entering the market as well as newer investors that have entered the market, other strategies are also been used for buying the stocks. A number of newer strategies known as quantitive strategies that are based on mathematical models are also been progressively used. Mathematical calculations are used for deciding which of the stocks should be bought. In fact this mathematical model involves no human interaction for the funds.

How the models are incorporated

Many of the quantitive investment models will also use stock fundamentals as well as technicals that include the past price movement of the stock. There is hardly any intervention by a human, when the model is tested. Unless of course such conditions precipitate human intervention such as fraud, natural calamity or such conditions. The respective manager will devise the quantitative models.

Those that are sophisticated investors and are looking for portfolio diversification should invest in the funds known as quant funds. The quant funds are analysed through the use of quantitative investment strategies. These quant funds are also meant for those that are looking at not just the returns as well as the qualitative aspects of the return process.

Those professionals that are involved in this process do so for all kinds of securities as well as assets. Of course there should be veritable liquid market that should be available for these securities and assets. In developed markets, these investment professionals have had a long stay in the better-developed markets. However in Indian markets where the markets are extremely shallow and modern derivative equipments aren’t available, the quant funds are slowly finding their own place.

Increased exposure of the quant funds

As more and more participation in the equity markets increase, there will of course be many takers for the quant funds also. There may also b a number of select investors that would be looking for select funds using this strategy. They include pair trading; directional strategies on benchmark Nifty and a small gamut of stocks with a liquid derivatives market.

Also one must understand their goals and investment objectives before investing in these funds. Some of the mutual funds as well as portfolio management providers are offering the quant-based funds to their investors. These funds also typically increase the exposure to the derivative instruments as well. For this reason, the investors are exposed to the associated risks as well as the leverage

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