Today I looked at the 270 stocks in my tracking portfolio that have either closed or been open more than 11 months. I then ran a correlation analysis between market cap and return. The correlation coefficient was about .07. That means they are uncorrelated, if you know the market cap you can not predict the return. I then tried the log of the market cap to scale things down a bit. The correlation coefficient bumped up to .13! That also implies no connection (for non-statisticians out there, as it approaches 1, the better the correlation).
I have been in touch with my programming friend , Dan F. He is going to run a test of 50 to 100 stocks to see how it works. If it works, I am also going to have him run the entire universe of stocks against quarterly financial statements. Then I'll calculate EY & ROIC and see how close my top 100 list is to the official list.
Stay tuned.
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