Stocks shortlisted based on above mentioned criteria are further analysed as:
•
For each eligible stock, Z Score is calculated on the basis of 6-month momentum and 12-month momentum
• Momentum Ratio for a stock is calculated as:
Momentum Ratio = (𝑃𝑟𝑖𝑐𝑒 𝑅𝑒𝑡𝑢𝑟𝑛)/𝜎p
▪ 12 month Momentum Ratio (MR12) = 12 month Price return / σp
•12 month price return (12 M return): [Price (M-1)/Price (M-13)]-1
Where M is the rebal month, and prices are as of the last trading day of M-1 Month and M-13 Month
•
Std.Deviation (σp ) : Annualised standard deviation of lognormal daily returns of the stock for 1 year
▪
6 month Momentum Ratio (MR6) = 6 month Price return / σp
•
6 month price return (6 M return): [Price (M-1)/Price (M-7)]-1
Where M is the rebal month, and prices are as of the last trading day of M-1 Month and M-7 Month
•
Std.Deviation (σp ) : Annualised standard deviation of lognormal daily returns of the stock for 1 year
•
Z Score of the Momentum Ratio for each security is calculated:
▪
The 12 – month Momentum Z score for each stock is calculated as per the following formula:
[MR12 – μMR,12]/ σMR,12
Where;
MR12 is the 12 month Momentum Ratio of the stock
μMR, 12 is the mean of the 12 month Momentum Ratios of the eligible universe
σMR,12 is the std. deviation of the 12 month Momentum Ratios of the eligible universe
▪
Similarly, the 6 month Momentum Z score for each stock is calculated as per the following formula:
[MR6 – μMR,6]/ σMR,6
Where;
MR6 is the 6 month Momentum Ratio of the stock
μMR, 6 is the mean of the 6 month Momentum Ratios in the eligible universe
σMR,6 is the std. deviation of the 6 month Momentum Ratios in the eligible universe
•
The Weighted Average Z score is calculated for each eligible stock as per the following formula:
o
Weighted Average Z Score = 50% * (12 month Momentum Z Score) + 50% * (6 month Momentum Z Score)
•
The Normalized Momentum Score is calculated for each eligible stock from its Weighted Average Z score as:
o
Normalized Momentum Score = (1+ Wgt. Average Z score) if Wgt. Average Z score >=0
(1- Weighted Average Z score)^-1 if Wgt. Average Z score < 0
•
Top 50/40/30/20 stocks with the highest Normalized Momentum Score are selected
