phaseinvest's proprietary regime change identification framework is a step forward in the innovation of stock price analysis. It presents a robust method for capturing Momentum Risk Premia.
The premise is that each security is in unique price phase and it can be sub-optimal to capture price momentum for each security over the same pre-defined time window e.g. 1-year price momentum. It is rational to identify each security's unique phase over which to measure its price analytics such as momentum and volatility.
Our PDE algorithm is based on the premise that permanent breaks in the structural volatility of a security price identify points at which the security's price path enters into a new phase or price regime. The point at which a new regime begins is defined as the Phase Date. All PDE analytics are measured within a each unique phase for each security.
The point at which the security price begins a new phase or regime.
The security's momentum between the Phase Date and the calculation date.
The security's volatility between the Phase Date and the calculation date. The factor value is the inverse of the volatility as volatility risk premia associated with low volatlity securities outperforming high volatility securities over the medium to long-term.
The security's information ratio between the Phase Date and the calculation date.
A security's absolute return differential within the phase from phase peak (trough) price to the price at calculation date for securities in a positive (negative) phase momentum.
The illustration below demonstrates the calculation of PDE analytics using the analysis date of 2023-02-17. Two of the four securities are in positive phase momentum while the other two are in negative phase momentum.
The 3-year end of day close price series including 2023-02-17 is fed into the PDE algorithm for each security. The algorithm identifies the Phase Date (column PDEPD) and then calculates all metrics between the PDEPD and the analysis date which is 2023-02-17
| Security | Input Metric | PDEPD | PDEMOM | PDEVOL | PDEIR | PDEREV | PDE Metrics Period |
|---|---|---|---|---|---|---|---|
| Eli Lily & Company | Adjusted Price | 2021-12-09 | 0.27 | 3.23 | 0.88 | -13 | 2021-12-09 to 2023-02-17 |
| Valeo SA | Adjusted Price | 2022-03-17 | 0.34 | 2.04 | 0.69 | -2 | 2022-03-17 to 2023-02-17 |
| Intel Corporation | Adjusted Price | 2021-04-22 | -0.35 | 2.17 | -0.75 | 10 | 2021-04-22 to 2023-02-17 |
| Credit Suisse Group AG | Adjusted Price | 2021-03-30 | -0.48 | 1.70 | -0.82 | 1 | 2021-03-30 to 2023-02-17 |