The High Alpha/ Low Beta stocks
Beta map
Sharpe Ratio Map
Sharpe Ratio Map 
P/E Ratio Map 
M/B Ratio Map
LAst 12-M Return % Map
Forecast 1-M Return % Map
I just discovered that ValuEngine's Institutional software does have Jensen's Alpha in its output. Jensen's Alpha is basically risk-adjusted Alpha [see formula in top image], and is what hedge fund managers use as measurement of their performance (and to justify their management fee). Jensen's Alpha is derived from the Beta, and therefore inherits all the flaws of a simple measure like Beta. Beta is a meaure of regression/correlation and its value depends on (1) the period used for calculation (2) assumption that it doesn't change much during the period of measurement and is not volatile [bad assumption]. What I wanted to know was, what kind of stocks are high Alpha low Beta and whether they would be suited for an edgy market situation like currently. When the market is strongly trending upward, you ought to pick high Beta stocks and never mind the Alpha, But when the market is uncertain, low Beta high Alpha stocks should do better since hopefully the Alpha component of a stock's characteristics will carry through to make gains in spite of the market. Thus using ValuEngine, I screened for stocks with (1) minimum market cap > $ 0.5 Billion (2) Average daily volume > 100000 shares (3) Beta<>
The results are interesting. Refer to the images above and looking at the scale below each map you will find the following characteristics of the high Alpha low Beta stocks in the table above.
1. These stocks have a high Sharpe Ratio- these are safe stocks, as measured by their returns/standard deviation over 5 years.
2. They have high last 12-month returns % and in the world of fundamental analysts that's high Momentum!
3. They have high P/E Ratio but low M/B Ratio- i.e going by book value ( and not just earnings) again, these are safe stocks.
What more could an investor wish for in such uncertain times? Now let's go over to the qualitative side and look at the Companies that are on our list. [If you look at any of the SOM, you will see that most of the stocks (their ticker symbols) are clustered very close together- a good sign that they have a high degree of similarity not only in their Alpha, but in all the other fundamental variables of the ValuEngine model]. For this reason, let's leave out WNR Western Refining way out in S1 cluster and ALK Alaska Air also away from the tight cluster.
FRG Frontier Gold: Exploration and Mining of Gold, Silver, Copper and Uranium
LOGM Logmein: Information Technology remote connectivity services for small and medium businesses
NFLX: Netflix. We know what it does, maybe there's some takeover of this business?
NRGY: Inergy L.P: owners of gas pipelines, storage tanks, terminals and other distribution networks.
PBT: Permian Basin Royalty Trust: Royalty rights in mineral properties in the U.S.
QCOR: QuestCor Pharmaceutical: Drugs for Nervous System, inflammation, insomnia
SQNM: Sequenom Inc: Biomedical Genetic Analysis and Molecular Dynamics for humans, agriculture and livestock.
SVN: 7-Days Group ADR: Chinese budget hotel chain with 400 hotels.
SVR: Syniverse Holdings: Wireless voice and data services for telecommunications companies worldwide
UXG: U.S. Gold Corp: Gold mining with properties in USA and Mexico
VHC: Virnetx Holdings: engages in developing and commercializing next generationsoftware and technology solutions for securing real-time communications over the Internet.
Well, wouldn't you agree that these are all sexy Companies? Just remember that the Alpha and Beta values used here are longer term calculations in line with ValuEngine's fundamentals-based models, so don't expect this to be like technical analysis. Perhaps next week we screen again for such stocks and denoise them or look at them with Wavelets like in some of the other posts.
