OperCashFl to Capex

Reading “Quantitative Strategies for Achieving Alpha” with the hope of improving my short and long ranking systems. Its a little bit of a poor man’s version of what What Works on Wall St.

The testing recommends OperCashFl to CapEx as the best factor to select stocks for shorting.

However, when I run the ranking performance (short) the top bucket performance drops off. I believe its related to stocks with high CapEx having a less negative score. I’m really looking for stocks with awful OpCashFl (very negative) and huge CapEx. Any recommendations on how to improve the ranking formula? Should I just require that we only rank stocks with negative OpCashFl and put the CapEx in the numerator?

Interesting - perhaps it varies by universe. Here is opcashfl/capex (both quarterly, higher better), short:

I have found that factor pretty useful myself, especially for long-term strategies. I use OperCashFlTTM / CapExTTM, universe, higher for long, lower for short. The 20-bucket charts can be misleading and are quite unstable (try different starting dates and you’ll see what I mean). I’d suggest trying five to ten buckets.

Good morning. The 10 bucket test shows a good direction for the formula (lower for short with EZ to trade US univ and 4 week rebal) . I may

monkey with this more tomorrow :slight_smile:

Why are all the bars except the bench negative?

Because we’re screening for stocks to short. And stocks go up on average :slight_smile:

So shorting based on the one factor alone does not make money…