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Citadel Team Three: Predicting the Future

Jake Xie, Alexander Guel, Yonathan Hundie, Nedim Abdelaziz, Katie Zhen

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Our Mission

What are the best ways to invest?

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Factors we must consider:

  • Long position
  • Short position
  • Risks
  • Returns

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High-Level Summary / Recommendations

Long term algorithm:

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  • Increasing momentum & low volatility -> invest
  • Decreasing momentum & high volatility -> sell

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High-Level Summary / Recommendations (cont.)

Short term algorithm:

  • Purpose of this algorithm: minimizes risk for investors, profits can increase drastically as more stocks are invested

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  • Standard deviation is high & the average rate of change is overwhelmingly positive -> BUY and sell FAST, with small amounts of money.
    • Lower risk & a significant reward

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% Returns of each companies’ stock + FAANG (Jan 2019 - Feb 2021)

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% Returns of each companies’ stock + FAANG (March 2021 - Present)

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Our Design Process

Understand

  • Reading through the prompt
  • Asking our coach questions

Research

  • Researching terms
    • Markouts, returns
  • Researching real life factors
    • Holidays (Black Friday)
    • Covid-19

Define Success

  • Maximizing profits for our investors

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Ideate

  • Analyzing our data
  • Finding several points of data
    • Standard deviation (volatility)
    • Average rate of change
    • Markout (momentum vs reversion)

Prototype/Testing

  • Testing algorithms
    • Based algorithms on original data, tested if they applied to current data

Communicate

  • We checked in with one another
    • Worked on different tasks, checked in when we each needed help
  • Communicated with our coach (Dylan Parker)
    • Received advice about analyzing our data
    • Average rate of change, markouts, returns

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Insights / Findings

  • Insights on momentum and reversion
    • Each certain stock is always experiencing periods of reversion and momentum
      • Momentum: positive markout
      • Reversion: negative markout
    • Periods of momentum are always followed with periods of reversion
      • Vice versa
  • During the holiday season:
    • After Black Friday, the markout for retail companies becomes significantly negative
      • Period of reversion
        • Thus, it would be wise to sell these stocks accordingly

November 2021

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Comparison between stocks

  • Apple is a volatile stock
  • FAANG stock prices are all related to one another
  • Apple’s return value is the greatest

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Final Recommendations

Based on our findings:

  • If you can only invest in one stock, invest Apple
    • Suitable for both short/long-term investment
    • Apple’s return value far exceeds the rest of FAANG and has high volatility
  • Ideal stocks for short-term investment:
    • Amazon
    • FAANG (ETF)

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Thank you!

Any questions?