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Contrarian strategies: how to constitute a pfolio based on P/E & P/B

Dear Quantopian community,

My name is Martin and I recently discovered this awesome website. I felt such a relief when I found out that there WAS a way to test investment strategies that easy.
In the context of a master thesis, I would like to test a contrarian strategy (inspired by Lakonishok, Shleifer and Vishny 1994). The strategy is the following:

for each sector i:

  1. Long the 10% lowest or first 10th decile of stocks from sector i ranked on a score averaging their P/E and P/B ratios
  2. Short the 10% higher or last 10th decile of stocks from sector i ranked on a score averaging their P/E and P/B ratios
  3. Reassess the composition of stocks every f weeks over the whole considered/available period (make sure that you still hold stocks from the top or bottom 10%/10-decile and make adjustments

The idea is to examine the influence of the sector i and the rebalancing frequence f on returns and risk-adjusted returns! Fun, isn't it.

My questions are:

  1. Suggestions on the strategy are more than welcome
  2. Is there a way to make the algorithm select stocks from a market by itself, instead of inputting it manually
  3. I am not familiar with python (more skilled in Java) and I know that this algorithm ( would help but I am not sure how to exactly use it... Any suggestions? (please?)

Thanks a lot,

1 response

That looks like a neat idea.

Writing that whole thing is bit more than I can bite off, but another algo to look at is the days-to-cover example. It has some decile trading in it. You may be able to stitch it together using some of the algos on the site.

If you're using P/E and P/B of the entire stock universe, you're going to need to spell them out by hand. We don't have an automated way (yet) to spell out custom universes.


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