Module 08 Equity Analysis

Equity Edge

                           Stock Analysis Techniques

  • Stock Portfolio model: A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. … Portfolios are held directly by investors and/or managed by financial professionals and money managers.                                                                            
  • Descriptive Statistics Models: Descriptive statistics are brief descriptive coefficients that summarize a given data set, which can be either a representation of the entire or a sample of a population. Descriptive statistics are broken down into measures of central tendency and measures of variability (spread).                     
  • Understanding Standard Deviation & Variance: The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. It is calculated as the square root of variance by determining the variation between each data point relative to the mean. If the data points are further from the mean, there is a higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation. The variance in probability theory and statistics is a way to measure how far a set of numbers is spread out. Variance describes how much a random variable differs from its expected value. The variance is defined as the average of the squares of the differences between the individual (observed) and the expected value.                          
  • Understanding CAL, SML & CML equations: Call and Put Options-If you buy an options contract, it grants you the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date. A call option gives the holder the right to buy a stock and a put option gives the holder the right to sell a stock. The security market line (SML) is a line drawn on a chart that serves as a graphical representation of the capital asset pricing model (CAPM), which shows different levels of systematic, or market, risk of various marketable securities plotted against the expected return of the entire market at a given point in time.                                                                                    
  • Markowitz Modern portfolio model: Modern Portfolio Theory is Markowitz’s theory regarding maximizing the return investors could get in their investment portfolio considering the risk involved in the investments. Markowitz theorized that investors could design a portfolio to maximize returns by accepting a quantifiable amount of risk.                                                              
  • Skewness, Kurtosis & Range: Skewness is a measure of symmetry, or more precisely, the lack of symmetry. A distribution, or data set, is symmetric if it looks the same to the left and right of the center point. Kurtosis is a measure of whether the data are heavy-tailed or light-tailed relative to a normal distribution. To find the mean, add up the values in the data set and then divide by the number of values that you added. Range, which is the difference between the largest and smallest value in the data set, describes how well the central tendency represents the data.            
  • Net Asset Value Analysis: Net asset value (NAV) is defined as the value of a fund’s assets minus the value of its liabilities. The term “net asset value” is commonly used in relation to mutual funds and is used to determine the value of the assets held. According to the SEC, mutual funds and Unit Investment Trusts (UITs) are required to calculate their NAV at least once every business day.                                                                                   
  • Canslim model by William J. ONeil: CANSLIM is a stock investing strategy designed by William J. O’Neil to produce market-beating profit performance. Using the CAN SLIM criteria in your investing should mean profitable returns. Current Earnings, Annual Earnings, New Products, Supply, Leaders, Institutional Sponsorship & Market Direction are key criteria.         
  • Relative & Comps Techniques: Comparably Company Analyses, or “Comps”, are a relative valuation technique used to value a company by comparing that company’s valuation multiples to those of its peers. Typically, the multiples are a ratio of some valuation metric (such as equity Market Capitalization or Enterprise Value) to some financial performance metric (such as Earnings/Earnings Per Share (EPS), Sales, or EBITDA).               
  • Dividend Discount Model: The dividend discount model (DDM) is a method of valuing a company’s stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. In other words, it is used to value stocks based on the net present value of the future dividends.


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