Blogs

Betting with a Moving Kelly Ratio

The Kelly ratio gives the optimal percentage of an investor’s wealth to bet in order to maximize his long term growth rate. It was originally developed for betting with known odds and win ratios, for games such as blackjack and horse betting. However, it has its uses in investments as well. For a stock instrument, [...]

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Random Walks

Introduction The random walk hypothesis states that stock market prices evolve according to a stochastic process, preventing the prediction of future stock market movements.  The concept follows from the weak version of the efficient-market hypothesis, which asserts that future stock market movements are not correlated with past movements.  In other words, the movement of share [...]

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Unemployment Rate and Stock Market Returns

The unemployment rate is generally considered to be a lagging countercyclical economic indicator. To better understand this indicator, we are going to use Palantir Finance to recreate a study by the CXO Advisory Group that analyzes the relationship between changes in the unemployment rate and the future returns of the S&P 500. This workflow assumes [...]

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Turtle Breakout Trading Strategy Simulation

Introduction The “turtles” are a group of traders in the 1980's formed by Richard Dennis and William Eckhardt to study whether trading ability is determined by nature or nurture. The group’s story is covered in many books such as Market Wizards by Jack D. Schwager, Way of the Turtle by Curtis Faith (an original turtle), [...]

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Tracking Analyst Optimism in Palantir Finance

We examine an interesting study recently published in the April 2010 McKinsey Quarterly.  The study can be found here (registration required), and the results are further discussed here.  This study examines a phenomenon known as “optimism bias” – the tendency of analysts predicting company performance to over-estimate how well a company will perform.   Analysts are [...]

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Researching Pairs Trades Using Regression

Pairs trading is a popular strategy used by many asset management firms where the firm goes long one security, and short another.  In this video, we will use Palantir to analyze a strategy of trading one gold ETF off of another (GLD and GDX).   GLD is the ETF that tracks the spot price of [...]

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Studying Nonfinancial Data in Palantir

While Palantir was developed with financial analysis in mind, its tools are data agnostic and can be applied to any data source.  In the study below, we import climate data from the website http://www.rimfrost.no/ and perform a quick analysis of trends in average monthly air temperature over the past several centuries. This video is best [...]

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Reverse Stock Splits

A recent Motley Fool article discusses reverse stock splits and their implications for future performance: “Investors have to wonder:  Will reverse splits do any good, or are they basically the kiss of death for a company?”  With Palantir Finance, we can easily examine the short-term performance of companies that undergo reverse stock splits.  This question [...]

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Using the VIX as a Market Signal

The Chicago Board Options Exchange Volatility Index, or VIX, is often cited as a market-timing indicator.  Traders have created a variety of strategies to exploit supposed correlations between this “fear index” and future market returns.  Using Palantir Finance, we can effortlessly examine the exact nature of these correlations to make more informed trading decisions.  The [...]

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The Fed Model

In this post, we will describe an equity trading strategy called the “Fed Model”.  The Fed Model refers to a method of evaluating equity markets versus fixed income markets, which claims that earnings yield of the S&P 500 (predicted forward earnings divided by the current price) can be compared to the yield of the 10-year [...]

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