Introduction to Stock StyleBox

While discussing multi factor scores, we introduced QVM score which is a single score combining quality, value and momentum factors.

While QVM score can be very useful in visualizing a stock’s factor tilt across all the 3 factors, it can, at times, be misleading. This will generally happen when a stock scores very high on one factor and average on other factors. To overcome this drawback, we have a “classification” methodology that tries to classify stocks into separate buckets (called StyleBoxes) using single factor scores (quality, value and momentum).

Stocks are classified into 10 StyleBoxes. The first 4 boxes (Super stock, Under the radar, Market angel and Potential turnaround) are “attractive” styles – stocks in these boxes are potentially attractive investment opportunities. These are styles that have high scores on 2 or more factors.

Then we have 5 “should-be-avoided” styles (Value trap, Momentum trap, Out of favour, Fallen angel, Don't touch). Stocks in these boxes should be avoided. These are styles that have high scores on only 1 or no factors.

In the next article, we will discuss each StyleBox in detail.