Factor Definitions
We utilize a number of individual return and risk factors in creating the Columbine Models. Each multifactor model has a different "recipe" of these factors, and not every factor is used in every model. Columbine's criteria for selecting these particular factors are two-fold: First, each factor has to make economic sense; simply exhibiting a correlation with future return is not sufficient without a sensible rationale. Second, each factor has to demonstrate significant predictive power on its own. In the case of the three risk factors, that predictive power is more related to the volatility of future return.
Ranking convention: Deciles (1 to 10). For return factors a ranking of 1 (top 10%) indicates most likely to outperform and 10 (bottom 10%) indicates most likely to underperform. For risk factors a 1 ranking indicates the lowest risk, while 10 is the highest risk. Factor rankings
for US stocks are benchmarked to the Columbine 1500 Universe.
Columbine factor rankings for non-US firms are benchmarked to the stocks of the Dow Jones Index for
the particular company's home country market.
Here are our factor name abbreviations as used in Columbine Research Book reports. Click on the factor name to go to that factor's definition.
RETURN FACTORS
Book Value
The book value-to-price ratio
Defined as: current book value divided by current stock price
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Cash Flow
The cash flow-to-price ratio
Defined as: trailing four-quarter EPS, minus trailing twelve-month dividends, plus depreciation, divided by the current stock price
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Columbine Alpha (price momentum)
Columbine's objective measure of each stock's price momentum
Based on a unique, volatility- and risk-adjusted quantitative model, the Columbine Alpha Factor forecasts each issue's probable performance over the next six to twelve months.
Defined as: the alpha estimate resulting from a generalized least squares regression of weekly (Friday-to-Friday) stock price changes for the past twelve months against weekly changes in the S & P 500 Composite Index for the same period. We apply proprietary weighting structures to the stock price change and market change data before the regression is run.
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Dividend Yield
A stock's dividends paid as a percentage of its current price
Defined as: trailing twelve-month dividends, divided by the current stock price
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Earnings Change
Analysis of quarterly EPS changes
Defined as: the weighted sum of the past twelve quarters of EPS, divided by current stock price. We apply a proprietary weighting structure to the quarterly EPS values, with more recent quarters receiving the heaviest weight.
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Earnings Growth
Analysis of longer-term EPS growth
Defined as: current trailing four quarter EPS, minus trailing four quarter EPS two years ago, divided by current stock price
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Earnings Surprise
A comparison of a company's reported earnings to the latest First Call consensus estimate
Defined as: actual reported EPS for the fiscal quarter just completed, minus the latest median EPS estimate for the same fiscal quarter, divided by one plus the latest median EPS estimate for the quarter
Stocks ranked 1 have had the largest positive earnings surprises; those ranked 10 have had the largest negative surprises (disappointments). If the reported and estimate figures are the same, the stock is ranked a neutral 5. If the company's last earnings announcement is more than thirty days old, the stock is ranked a neutral 6 and the factor is ignored in computing rankings from our multifactor models.
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Estimated Earnings Yield
An earnings yield based on the First Call consensus EPS estimate
Defined as: median estimated EPS for the next four quarters, divided by the current stock price
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Estimate Revision
A multifaceted measure of revisions to sell-side analysts' estimates of each company's FY1 earnings
Revisions during the past sixty days are included, with double weight given to changes in the last thirty days. If a company is more than six months into its fiscal year a blend of FY1 and FY2 data is used. All estimate data is from
First Call. The factor ranking is a synthesis of three individual components:
Analyst Agreement - Are the estimates changing in concert?
Defined as: number of positive revisions minus the number of negative revisions, divided by the total number of estimates.
Revision Confidence - Are the extreme estimates changing?
Defined as: change in the highest estimate plus change in the lowest estimate, divided by the current stock price.
Revision Magnitude - How big is the typical revision?
Defined as: change in the median estimate divided by the current mean estimate.
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Industry Momentum
A proprietary measure of each industry group’s price momentum.
Defined as: a time series analysis of each group’s weekly price changes over the past 48 weeks. The weighting structure differs from that of the Columbine Alpha Factor, and there are no beta or volatility adjustments.
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Operating Funds Momentum
A measure of the growth in a company's operating funds (Used in international models only)
Defined as: change in funds from operations (cash flow) over the past year
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Reported Earnings Yield
The classic value measure based on reported EPS figures
Defined as: current trailing four-quarters EPS divided by the current stock price
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RISK FACTORS
Beta
The standard measure of a stock's market risk
Defined as: the beta estimate from regressing five years of weekly stock price changes against the weekly changes in the S & P 500 Composite Index for the same five years
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Market Liquidity
A measure of how difficult it may be to trade a given stock
Defined as: current stock price times the average daily trading volume over the previous full month
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Earnings Volatility
A measure of how variable a company's quarterly earnings are
Defined as: the standard deviation of the reported EPS over the past twelve quarters
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