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Simply put, it is a system that calculates stock values. Quadrix/Quadrix Stock Rating System - is proprietary stock valuation system using over 90 variables in 7 significant categories(momentum, quality, value, financial strength, earnings estimates, performance and volume) to pick stocks and to determine the value of a stock or score stocks. Overall score for a particular stock is computed by a weighted average of all category variables.
Quadrix is a proprietary software developed by Horizon Investment Services/Publishing company, which hold trademark rights to it. It is a quantitative stock scoring and rating system. Quadrix scores were published since early 2000 to date.
Quadrix scores are in reality, percentile rankings (0-100). The Quadrix stock rating system ranks over 5000 stocks based on over 90 different variables per stock.
Overall scores are designed to measure the appeal of stocks across the spectrum, identifies winners and avoids losers. Quadrix is not influenced by emotional judgement biases and hence is designed to provide unbiased feedback on current portfolio holdings based upon quantifiable factors.
In computing an Overall Score, Quadrix uses weighted averaging of the individual six category scores(with exception of volume metrics), with Value, Quality, and Momentum having biggest weightings. Within each category, based on past efficacy and market expectations, weightings for the individual variables or categories may be heavier or lighter.
A brief look at the category wise variable analysis by Quadrix:
1. Momentum: for momentum scoring, each stock is compared to all stocks. Sum of the stock’s scores for each momentum variable is then compared to the universe of stocks. Momentum factors are more short term in nature. Shorter the investment time horizon, the more important is Momentum.
2. Quality: is a measure of the company’s track record. Of the 20+ Quality variables, majority are growth rates(sales, earnings, cash flow, common equity, and dividends). Other quality variables include expected profit growth, earnings consistency, RoE,RoI, and RoA. The time periods considered are the past 1,3,5 years.
Quadrix effectively discounts companies growing earnings through cost-cutting or restructuring charges.
3. Value: Contain more than 20 variables such as, ratios as price/earnings (P/E), price/sales, price/cash flow, price/book value, price/dividend, and Price earning growth(PEG). Besides these ratios are compared with their average values over past 3-5 years.
4. Financial Strength: Evaluated by more than 10 variables, reflecting interest coverage, debt positions, and profit margins. These scores, weed out companies with weak financial positions
5. Earnings Estimates: Tracking trends in earnings estimates, allows Quadrix to determine whether stock price action is supported by company fundamentals. This category receives a lower weightage in the rating as Earnings Estimates are often volatile.
6. Performance: reflects total returns of the stock relative to other stocks. Bullish and bearish indicators are evaluated with respect to the time-frame. Total returns are computed for time ranging from two months to 12 months. Hence Quadrix lays emphasis on short term returns, thereby also rewarding stocks with poor long-term returns.
7. Volume Metrics: These scores consider recent stock trading volumes with respect to historical trading volumes. The Volume metrics scores are never used in overall Quadrix score calculation.
• A numerically ranked system such as Quadrix, can be a great first step for building portfolios.
• Quadrix uses only quantifiable factors, avoiding incorporating emotional biases and decision making into the process. Consequently it narrows the focus onto companies delivering superior results.
• Quadrix performs well in uncovering potential buy candidates, and in avoiding losers.
• Quadrix has proven to be useful in tracking varied industry group, therefore illustrating whether leading groups are gaining within an industry due to strong fundamentals.
• Quadrix does not take into account company growth due to inorganic measures, such as acquisitions.
• There can be no quantitative substitute for company analysis – for example, Quadrix can indicate which drug companies have had growing sales earnings, but cannot inform on companies with competitive new drugs in the pipeline.