Leveraging the Technical Competence of a Stock for the Purpose of Trading

Abstract

As per Ocean Tomo Consulting, in 1975, more than 80% of corporate value reflected in the S&P 500 was tangible assets, while intangible assets comprised less than 20% of market capitalization. By 2020, the game was completely changed, and nearly 90% of the market value of the S&P 500 resided in intangible assets. This research paper is intended to apply the above theory in the algorithm trading world. There exists a trading strategy based on patents (intangible assets) in the database of Quantpedia.com. The below paper is written on checking the robustness of that strategy by backtesting it through changing various market indicators. The backtesting results lead to the conclusion that the stocks with high PTM ratio should be bought and stocks with low PTM ratio should be sold in a group of tertiles when we weigh them through the market value weighted method and rebalance the portfolio yearly.

Keywords: PTM ratio, Patent trading strategy, Backtesting, Intangible assets trading strategy