It has been found that QUICK Consensus provided by QUICK, a financial information provider, can be used to capture stock price movements with high accuracy. The Revision Index (“RI”), calculated using QUICK Consensus, is likely to help develop effective investment strategies.
QUICK Consensus is a proprietary aggregation of company earnings forecasts and stock price ratings forecasted by analysts at securities and research firms. It enjoys the most extensive coverage in Japan and is recognized as the most well-known and reliable consensus.
Calculating the RI Using QUICK Consensus
First, we calculated the RI using QUICK Consensus. Generally, RIs are used as an index of earnings forecast revisions made by securities analysts. A larger positive value indicates a growing momentum of upward revisions, while a larger negative value shows a growing momentum of downward revisions. This index captures the direction of change in business performance and is used to judge business confidence. In this report, we set portfolios by industry and verified whether investment returns could be obtained using the RI.
Industry-specific RIs are often compiled in large categories, such as TOPIX sector indices. However, increased accuracy can be expected by narrowing the target to companies with similar business categories. We extracted companies in similar business categories based on the attributes of the companies and the indicators they disclose.
The industries analyzed in this report are drugstores (17 stocks), system development (14 stocks), housing-related (12 stocks), and restaurants (Izakaya, casual Japanese bars) (15 stocks). A classification more narrowly focused than the TOPIX Sector Indices was used based on reports by sector analysts.
Investment Decisions Based on the RI
Next, we performed a back-test to verify the actual investment results using the RI calculated based on QUICK Consensus. Based on the RI compiled for each industry at the end of each month, we formulated investment strategies to determine which stocks to buy. We judged the stocks should “be bought“ if the RI rose and “not be bought” if the RI fell. The stocks purchased were held until the end of the following month, after which the position was again determined based on the updated RI.
The following charts show the performances of each industry sector from January 2018 to October 2021, with the RI used as the investment decision factor.
Drugstores
System development
Housing-related
Restaurants (Izakaya)
*Black line (Benchmark): When investments were made regardless of the RI
*Red line (RI): When stocks were purchased if the end-of-month RI was positive, but not purchased when the end-of-month RI was negative
*Green line (D1): When stocks were purchased if the end-of-month RI increased from the end of the previous month; otherwise, stocks were not purchased
*Blue line (D2): When stocks were purchased if the end-of-month RI was higher than at the end of the previous two months; otherwise, stocks were not purchased
*Light blue line (D3): When stocks were purchased if the end-of-month RI was higher than at the end of the previous three months; otherwise, stocks were not purchased
RI shows the performance when the RI at the end of the current month was used as-is for investment decisions. D1, D2 and D3 represent the performances when the RI was used for investment decisions by comparing the historical RI with the RI at the end of the current month. D1, D2 and D3 differ in the period of data compared.
The results indicate that drugstores had the best performance in RI, while system development and housing-related had an outstanding performance in D3, and restaurants (Izakaya) in D2. All of them outperformed their benchmarks. This suggests that making investment decisions using the RI, which is calculated based on QUICK Consensus, ensures effective investment management.
In this validation period, all industries generated more returns when the RI was used. If focused on these specific industries, the RI using QUICK Consensus can provide an investment strategy that aims for returns outperforming the benchmark. This demonstrates the effectiveness of QUICK Consensus as an extremely useful investment tool for identifying industry trends.
QUICK provides data on various companies through its data platform, QUICK Data Factory. QUICK Consensus, which aggregates various analyst forecasts for sales, EPS, ROE, EBITA, etc., covers historical data from 2005.
QUICK Consensus on QUICK Data Factory
https://corporate.quick.co.jp/data-factory/en/product/data009/
