After trawling through the stats on the many, many backtests that everyone in the community has developed, we at Quantopian have determined that a new series of template algorithms is warranted. We have the benefit of looking at community activity cross-sectionally and we have seen that there is a lot of strong development work on technical signals (mean reversal and momentum chiefly). Unsurprisingly, there are many fewer algorithms that have tapped into fundamental signals for their sources of predictive power. This algo is a great starting point for anyone looking to incorporate fundamentals-driven signals into their repertoire.
FCF/EV
Free cash flow (FCF) is a measure of how much cash a company has on hand after all expenses are extracted. High FCF indicates that larger amounts of cash are available to the company for reinvestment. By dividing by a company’s enterprise value (EV), we can compute a ratio that shows how cash is generated per unit of the value of a company. In this implementation, we can test the idea that companies with a relatively higher ratio of FCF/EV are likely to outperform companies with relatively lower levels of FCF/EV. Read more here.
As we look to expand the set of algorithms receiving allocations over the next few months we expect to give preference to new ideas that take advantage of a broader range of fundamental factors.
To get started, clone this algorithm, improve it with your own ideas, and submit it to the Quantopian Daily Contest.
N.B. As implemented here, this algo doesn't fully meet all of the criteria for entry in the daily contest so we're leaving that as an "exercise for the reader".
