APPROACH

Monitoring Non-Equilibrium Behavior in Financial Markets

Our Approach

Precision Alpha uses six months of closing-price measurements and the mathematics of machine learning to calculate exact, closed-form expressions for Market Probabilities, Market Energy, Market Power, Market Resistance, and Market Noise.

Precision Alpha provides indicators of significant price movement with a six-week future horizon.

Precision Alpha uses non-equilibrium signal analysis on closing prices to expose what market participants are currently unable to see: Exact, unbiased probabilities that show reversion-to-mean and increasing momentum.

Precision Alpha identifies structural breaks in financial time-series to indicate a confluence of factors that offer a favorable risk-adjusted return.

Abbreviated definitions of Precision Alpha quantities from the Data Dictionary.
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  • Next Day Probability Up: Probability that the value of the measured asset will go up the next day.
  • Next Day Probability Down: Probability that the value of the measured asset will go down the next day.
  • Market Emotion: Market energy measured from the equilibrium energy as zero offset.  Positive: Bull, Negative: Bear.
  • Market Power: Rate at which work is done, in other words, energy converted to price movement.
  • Market Resistance: Entropic force resisting change to the dominant price direction.
  • Market Noise: Diffusion that dissipates market energy so that it is not used to generate price movement.

The Sharpe ratio is defined using statistical expressions, namely, the average return and the standard deviation. It is clear, however, that financial markets are not in statistical equilibrium, and this measure is misleading in most financial markets. The non-equilibrium generalization of the Sharpe ratio can be shown to be always greater than the equilibrium case. Therefore we call the non-equilibrium expression a “Sharper ratio”, and is defined as the ratio of the expected PL minus the risk-free return, divided by the expected PL minus the average return.

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Our Services

For the systematic/quant fund, we offer a raw data file sent out daily.
For Discretionary/Fundamental we have a real-time mobile app.

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Happy to answer any questions you might have and set up a Demo for you.

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