How to find similar stocks?

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How to find similar stocks?

posted Aug 27, 2016

Finance Theory Seeking Help Value

Hi,

I have zero knowledge of fundamental valuation. Can anyone in community help me identify "similar"stocks. i.e. stocks that share similar characteristics using fundamentals? I want to create groups of 30+ similar stocks and trade them. Please advise.

10 responses

Pravin,

Stocks in the same sector that have highly correlated return streams would be a good approach. You could also seek stocks in the same sector with similar leverage ratios .

Thanks Frank. I guess I will have to use clustering to seek stocks in same sector with similar leverage ratios.

Pravin,

Here is a more time intensive approach. Would love to see if you are able to accomplish this task globally using a clustering algo.

See also http://scikit-learn.org/stable/auto_examples/applications/plot_stock_market.html.

That is awesome, thanks Grant.

Credit for the original post to James Jack from back in the early days of Q - https://www.quantopian.com/posts/1st-attempt-finding-co-fluctuating-stocks . You're welcome. --Grant

@Frank - thanks a lot for introducing me to doing this with pipeline. I will try and make it clusterable.
@Grant - thanks for the example.

@Frank - attached is code to find similar stocks by leverage with sector using KMeans clustering algorithm.

Thanks Pravin -

Why are you interested in leverage? Or did you just pick it arbitrarily as an example?

Also, I'd consider if this code handles splits point-in-time properly (I'd be worried that the pricing data aren't aligned in time with the shares_outstanding):

class MarketCap(CustomFactor):  
    inputs = [USEquityPricing.close, morningstar.valuation.shares_outstanding]  
    window_length = 1  
    def compute(self, today, assets, out, close, shares):  
        out[:] = close[-1] * shares[-1]

I simply use:

market_cap = mstar.valuation.market_cap.latest

Grant - I picked leverage just for example. Thanks for the market_cap hint.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.