Investment Thesis

At Sigma 3, we harness the power of quantitative anlysis to meticulously curate and manage your investment portfolio. Our state-of-the-art approach leverages advanced quantitative analysis techniques, including the Capital Asset Pricing Model (CAPM), Dividend Discount Model (DDM), and Value at Risk (VaR), to identify high-potential stocks and optimize returns.


Revolutionizing Investment with Advanced Quantitative Analysis


Capital Asset Pricing Model (CAPM)

The CAPM formula is used to determine the expected return on an investment given its risk relative to the market. The formula is:

Expected Return = Rf + β × (Rm - Rf)

Where:

  • Rf is the risk-free rate

  • β is the beta of the stock (a measure of its volatility relative to the market)

  • Rm is the expected market return

Let's assume:

  • The risk-free rate (Rf) is 3%

  • The beta (β) of the stock is 1.2

  • The expected market return (Rm) is 8%

Plugging these values into the CAPM formula, we get:

Expected Return = 0.03 + 1.2 × (0.08 - 0.03)
Expected Return = 0.03 + 1.2 × 0.05
Expected Return = 0.03 + 0.06
Expected Return = 0.09 or 9%

So, according to CAPM,
the
expected return on this stock is 9%.

Value at Risk (VaR)

Value at Risk (VaR) measures the potential loss in value of a portfolio over a defined period for a given confidence interval. It helps investors understand the level of risk they are taking on. This is a hypothetical example for illustrative purposes only.

Parameters:

  • Portfolio value: $1,000,000

  • Confidence level: 95%

  • Time period: 1 day

  • Historical daily returns (simplified for illustration): -2%, -1.5%, -1%, -0.5%, 0%, 0.5%, 1%, 1.5%, 2%, 2.5%

Steps:

  1. Organize the returns in ascending order:

    -2.0%, -1.5%, -1.0%, -0.5%, 0%, 0.5%, 1.0%, 1.5%, 2.0%, 2.5%

  2. Determine the 5th percentile return for a 95% confidence level:

    Interpolating between the first (-2.0%) and second (-1.5%) worst returns:
    Interpolated 5th percentile return = -2.0% + 0.5 × (-1.5% - (-2.0%)) = -1.75%

  3. Calculate the VaR in monetary terms:

    VaR = Portfolio value × |Interpolated 5th percentile return|
    VaR = $1,000,000 × 0.0175 = $17,500

Result:

At a 95% confidence level, the VaR for this portfolio is $17,500. This means there's a 95% probability that the portfolio will not lose more than $17,500 in one day, based on historical data.

These rigorous methods help ensure that your portfolio is strategically positioned for growth while managing risk effectively. Join Sigma 3 to experience investment management that combines cutting-edge technology with deep financial expertise. This is a hypothetical example for illustrative purposes only.

Disclosures . Examples are hypothetical scenarios: Equations used to calculate returns.

FV=P×r(1+r)n−1​+P0​×(1+r)n

Where:

  • FV = Future Value of the investment

  • P = Monthly contribution

  • r = Monthly interest rate (annual rate divided by 12)

  • n = Number of months

  • P0_00​ = Initial investment (lump sum)

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