Multifactor Analysis

One of the most powerful screening innovations was introduced by James P. O'Shaughnessy in the 4th edition of 'What works on Wall Street'. O'Shaughnessy found that by combining momentum and value factors, performance significantly increased while at the same time reducing risk. He found that a model based on first selecting the stocks with strong momentum and then selecting the 25 stocks with the highest yield was one of the best-performing strategies in his study. We found very similar results in our study. By, for instance, selecting the top 20% book-to-market companies and then taking the shares in the top 20% price increase, the return over the 12 years of the study was 1029%.

Running multifactor analysis can be very laborious in excel as you need to set filters, select a subset, copy it to another sheet and set another filter... In our screener, you can set these screens up in seconds and instantly get results. We provide four filters, and for each of them, you can select a base and top level, each between 0 and 100. 0-10 means good, and 90-100 means bad. Depending on the ratio, 0-10 returns the highest (e.g. EBITDA Yield) or the lowest (e.g. Price-to-Sales) values.

In the example model below, we:

  1. Select the top 20% stocks with the highest price increase during the last six months. This reduces the stocks in the screener from 32,052 to 6,314 stocks.
  2. Then, from this subset, we select the top 20% of stocks ranked by shareholder yield. This leaves 1,263 stocks in our selection.
  3. We filter the 1,263 and only keep the 20% stocks with the highest EBITDA Yield. This brings back 253 stocks.
  4. Finally, we select the top 20% of stocks ranked by Book-to-market. This keeps only 51 stocks in our selection.

These 51 stocks can be further filtered or ordered in the screener grid on the right. This might leave even fewer stocks in the grid. Please note that the above example is for demonstration purposes only. We don't have any studies showing that this model is beating the market.

Our powerful screener can update the results in real-time as you're changing the factors and the % ranges.

Multifactor Analysis