Forward looking estimates

Today we are making “forward looking estimates” on our indicator available to all. This is very exciting, in fact so exciting that this post almost got delayed till next week. Reason being that I got distracted playing around with it myself.

So what is a forward looking estimate?

On the site, as you probably know, you can view our AgoraOpus Indicator (AOI) for the companies we cover. This is what we call a rank oscillator, because it’s ranking companies relative to the other companies. This is a snapshot view of the current rankings, and while we find this useful, what we find even more useful is to look at how this changes over time.

Looking back, you can easily see how this has been changing over time, helpful when gaining a feel for how it has been applied to some company historically. What we also wanted to do was to include a forward looking projection for how we think the rank indicator will change in the future.

Now, of course, predicting the future is hard, but we have a few things working to our favor here. First of all, the rank oscillator is relative to the overall set of companies included in the analysis. So it’s operating within a range. This range bounds it, and you can conclude that what’s at the top, can’t really go much more up. And what’s at the bottom, in a similar fashion, can’t move much further downwards. We basically have mean reversion in company rankings.

Mean reversion is one of the things we’re currently using for the next 10 portfolio, where we avoid the top 10 because there’s a risk of them heading down. But naturally it’s not perfect, because, even if it maybe can’t go much more up, it doesn’t need to go down either. It can stay up there for a bit longer.

Plotting trends on historical indicator values is one method of estimating what it will do in the future. But internally we have so much more data available to us from the model, which should allow us to provide a better estimate.

And that’s what we’ve done. The forward looking estimate stretches 9 months into the future shown in blue, and is for now loaded by default when you sign in. Also, as we are strong believers in transparency, we make available the future estimate we had at the time, historically. You can view the historical forward looking estimate by clicking on the chart for the date you want. That will then load the estimate as we would have published it at the selected date.

Demo of forward looking estimate indicator for Netflix

Above shows a demo for Netflix, with the 9 months forward looking estimate shown initially as of the current date. Then, by clicking the chart, it is loaded for a previous date.

This blog post was written by Christian, the main portfolio curator here at AgoraOpus. With a background from FinTech, he holds a MSc in Quantitative Finance and a BSc in Computer Science and Industrial Automation.

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