StarMine Analytics FAQs

Below are definitions of the various StarMine analytics that are featured on Alpha Now.

What is StarMine ARM?
What is StarMine EQ?
What is StarMine RV?
What is StarMine IV?
What is StarMine Combined Credit Risk?
What are StarMine SmartEstimates?
What is Predicted Surprise %?
What are StarMine SmartGrowth estimates?

What is StarMine Value-Momentum?
What is StarMine Price Momentum?
What is StarMine Structural Credit Risk?
What are StarMine SmartHoldings?
What is StarMine SmartRatios Credit Risk?
What is StarMine Short Interest?
What is StarMine Short Squeeze Indicator?
What is StarMine Text Mining Credit Risk?
What is StarMine Insider Filings?
 

What is StarMine ARM?
The StarMine Analyst Revisions (ARM) Model is a 1-100 percentile ranking of stocks designed to predict future changes in analyst sentiment. Our research has shown that past revisions are highly predictive of future revisions, which in turn are highly correlated to stock price movements. StarMine’s proprietary formulation includes overweighting the more accurate analysts and the most recent revisions and intelligently combining multiple dimensions of analyst activity to provide a more holistic portrait of analyst sentiment and a better predictor of future changes.

What is StarMine EQ?
The StarMine Earnings Quality (EQ) model is a 1-100 score based on a systematic quantitative methodology based on research findings that determined the market is inefficient in differentiating between sustainable and unsustainable sources of earnings. The StarMine EQ score allows you to objectively compare a company’s earnings quality relative to all other companies. Our model favors (with higher regional percentile rankings) stocks whose earnings are backed by cash flows and other sustainable sources and penalizes those driven by accruals and other less sustainable sources. The areas that StarMine’s research has found to be most predictive of earnings sustainability are: accruals, cash flow, operating efficiency, and, in North America, exclusions. No qualitative analysis affects this model scores. Low scores should be considered more bearish, high scores more bullish.

What is StarMine RV?
The StarMine Relative Valuation (RV) model takes a comprehensive approach to assessing relative value by intelligently blending several informative ratios into a single 1-100 score that makes meaningful comparisons across sectors, industries and regions and significantly outperforms basic factors. StarMine RV intelligently blends the most additive and complementary valuation ratios and includes both reported actuals and our proprietary SmartEstimates for FY1 and FY2. Forward estimates are over-weighted relative to actuals where analyst estimates have historically been most accurate and under-weighted for measures where estimate error is typically highest. The inputs are combined using a dynamic algorithm that differentially weights each component according to company-specific characteristics. The result is a profitable, robust, and intellectually satisfying method for sorting stocks based on relative valuation.

What is StarMine IV?
The StarMine Intrinsic Valuation (IV) model is a 1-100 score that relatively ranks all companies in a region based on their intrinsic value. High (low) scores represent stocks that are undervalued (overvalued). The model accounts for the systematic biases that our research team found in sell-side estimates. Namely, the faster the expected growth rate, the more optimism bias. And, farther out estimates are more optimistically biased than nearer ones. The strong tendency of rapid growth rates to revert to the mean is frequently underestimated, which is especially problematic when attempting to value growth stocks.

What is StarMine Combined Credit Risk?
The StarMine Combined Credit Risk Model (CCR) is StarMine’s best estimate of credit risk at the
company level that incorporates information from the StarMine Structural, SmartRatios, and Text
Mining Credit Risk Models into one final estimate of corporate credit risk. By incorporating information from multiple independent data sources – from the equity market, from analyst estimates and financials, and from analysis of the language in important textual documents – and placing the most emphasis on the inputs that are most effective for a given company, StarMine CCR creates powerful default predictions and assessments of credit risk that are more accurate than using any one data source alone.

What are StarMine SmartEstimates?
SmartEstimates help you better predict future earnings and analyst revisions with estimates that place more weight on recent forecasts by top-rated analysts. SmartEstimates are created in two steps. First, we exclude stale estimates and data errors, then weight the remaining estimates based on each analyst’s track record. When the SmartEstimate diverges from consensus by 2% or more, our research shows that you can anticipate earnings surprises with an accuracy rate of over 70%.

What is Predicted Surprise %?
The Predicted Surprise % is the percentage difference between the SmartEstimate and the I/B/E/S consensus estimate. When SmartEstimates diverge significantly from consensus, it serves as a leading indicator of the direction of future revisions and/or surprises. In aggregate, this indicator gets earnings surprises directionally correct 70% of the time.

What are StarMine SmartGrowth estimates?
Research has shown that sell-side analyst estimates include significant systematic errors and biases. StarMine has identified and systematically removed three forms of analyst error and bias to improve the accuracy of longer-term estimates and enhance their ranking and sorting abilities. The resulting StarMine SmartGrowth Earnings Projections for FY1 through FY5 provide more accurate and reliable inputs than analyst consensus estimates.

What is StarMine Value-Momentum?
The StarMine Value-Momentum (Val-Mo) model combines StarMine’s two valuation models, StarMine Intrinsic Valuation and StarMine Relative Valuation, along with StarMine’s two momentum models, the StarMine Analyst Revisions Model and StarMine Price Momentum, into one exceptionally strong stock ranking model.

What is StarMine Price Momentum?
The StarMine Price Momentum (Price Mo) model is a 1-100 score that intelligently leverages the tendency of long-term trends in returns to continue and the tendency of short-term trends to revert. The model includes an innovative blend of short-term, mid-term and long-term components and also incorporates information on industry-level price momentum and the degree of consistency, or volatility, in prior returns.

What is StarMine Structural Credit Risk?
The StarMine Structural Credit Risk model evaluates the equity market’s view of the probability that a company will go bankrupt or default on its debt obligations over the next 1-year period. The model is StarMine’s proprietary extension of the structural default prediction framework introduced by Robert Merton that models a company’s equity as a call option on its assets. The equity volatility, market value of equity, and liability structure are used to infer a market value and volatility of assets. The final default probability is equivalent to the probability that the market value of assets will fall below a default point, which is a function of the company’s liabilities, within 1 year. The model output includes default probabilities, 1-100 percentile scores, and letter ratings.

What are StarMine SmartHoldings?
The StarMine SmartHoldings model is a global stock selection model that ranks stocks based on the expected future increase, or decrease, in institutional ownership. The underlying hypothesis of the model is that institutions show high conviction in buying companies with particular characteristics, where these characteristics are fundamental factors such as price/earnings and debt/equity ratios. At the core of the model is an algorithm that reverse engineers each fund’s purchasing profile based on the underlying fundamental factors of the companies a fund is buying. Once we have the purchasing profile of each fund, we compare the fundamental factors of every stock globally to each fund’s purchasing profile to determine the alignment between the stock and the fund. We then aggregate the results across all funds and rank each stock based on the collective appeal or demand for it relative to all other stocks by region. The result is a predictive model that accurately predicts which stocks will see an increase or decrease in institutional ownership. A long/short trading strategy based on this ranking produces high Sharpe ratios and annual returns.

What is StarMine SmartRatios Credit Risk?
The StarMine SmartRatios Credit Risk Model utilizes accounting ratio analysis, incorporating data from both reported financial statements and forward-looking analyst estimates via the StarMine SmartEstimate. The model combines financial ratios and metrics that are predictive of credit risk into five components: profitability, leverage, debt coverage, liquidity, and growth. The model also incorporates industry-specific metrics where appropriate, particularly for banks and insurance companies but also for retailers, utilities, airlines, and others. The model output includes 1-100 scores for each of the five components, default probabilities, overall 1-100 percentile scores, and letter ratings. The SmartRatios model is more effective at predicting defaults than commonly used alternatives such as the Altman Z-score or the Ohlson O-score. The model can also be used to enhance equity selection performance, and in fixed income and cross-asset strategies.

What is StarMine Short Interest?
StarMine’s Short Interest Model uses the widely accepted and empirically verified intuition that high levels of short interest reflect negative sentiment on the part of sophisticated investors and are associated with negative future returns. The score is designed to rank US companies on a 1-100 scale on the basis of informed short interest activity.

What is StarMine Short Squeeze Indicator?
The StarMine Short Squeeze Indicator (SSI) is an independent but complementary 1 to 100 rank that predicts the relative percent price rise in the next 30 days. A score of 100 means very likely to have a short squeeze (high price rise) in next 30 days, and a score of 1 means very unlikely to have a short squeeze.

What is StarMine Text Mining Credit Risk?
This very unique component of StarMine Credit Risk applies sophisticated text mining algorithms to StreetEvents earnings conference call transcripts, financial statements and other regulatory filings, Reuters News, and select broker research reports to identify language that is predictive of credit risk. The model allows analysts to quickly identify the most important documents for a company out of the potentially hundreds they may be responsible for, and it gives quants a powerful new quantitative signal by systematically analyzing a large body of previously untapped qualitative data.

What is StarMine Insider Filings?
The StarMine Insider Filings model ranks companies in the US on the basis of the sentiment of company executives and directors about their company stock, as reflected in insider stock transactions and ownership. The model exploits the finding that agreement across insiders as expressed by buying (selling) stock is predictive of company out (under) performance in the coming months. Our intuitive model uses publicly available insider filings to assess two dimensions of insider sentiment: how many insiders are buying or selling company securities, and how much is being bought and sold by insiders. The model employs proprietary methodologies to incorporate various types of security and options transactions, while also paying special attention to the timing of those transactions.