Markets Mojo: Using algorithms to analyse stocks

Direct equity investing is a challenging proposition. Selecting the right company at the right time to invest is more science than luck. Without the right analytical tools, taking an informed decision could be next to impossible.

Stock market portals act as one such tool, as they provide a host of financial data. These include share price trajectory, shareholding data, the latest news and information on key metrics such as price-to-earnings or price-to-book on a particular company. Though this information is available, one needs to have the needed understanding and knowledge to make use of it.

New stock market-focused website Markets Mojo (marketsmojo.com) has one such offering, using financial algorithms. The site doesn't only provide sundry data of listed companies but rates these on three key metrics. Companies that scores high on the three (termed ‘3 Mojo Dots’) tend to perform better, back-testing done by the website shows.

So, essentially, instead of saying a stock is trading at a one-year forward price to earnings ratio (PE) of 10, Markets Mojo will tell if the stock is attractive, expensive or risky. Similarly, instead of throwing basic financial numbers, it will tell how a company compares against sectoral peers.

At first glance, the website appears like most stock market-oriented portals, with cluttered information on performance of key indices, major advancing and losing stocks, automated commentary and news snippets, sourced primarily from newspaper portals.

However, the use of 300 algos to rate a wide range of stocks on the three parameters -- quality, valuation and financial trend -- sets it apart. Markets Mojo claims high correlation between stock performance and its three-dot parameter.

To illustrate, Hindalco Industries scored well on quality, ‘very expensive’ on valuation and ‘very positive’ on financial trend when searched on Wednesday. The reason the stock was termed ‘very expensive’ was that it was trading at a PE ratio of 86, compared to the historical level of 25 times. The site also offers interesting titbits on the reasoning behind Hindalco’s score on the other two parameters.

Use of algo ensures almost the entire listed universe space is rated by the site. This takes a coverage universe way beyond what brokerages analyse. Typically, most of the latter restrict their analysis to the top 500.

Another aspect is a ‘portfolio analyser’ tool, allowing users to upload investor information on their stock holding. The site then analyses an individual’s stock portfolio on seven parameters — return, risk, diversification, liquidity, quality, valuation and current financial trend. Markets Mojo also benchmarks the portfolio with an algo-generated index having a mix of similar stocks in the same sector that fared better on the site’s three-dot parameters. It also tells if a portfolio is concentrated in one sector or comprises high-beta stocks, which makes it volatile.