Quantum Strategy: Winning Strategies of Professional Investment

By Warren H. Lau

"It takes as little as only one second for any news to change the direction of a stock chart."

Warren H. Lau

In short, Quantum Strategy a new school of investment strategy which is grounded through studying the correlations among stock price movement and different statistically measurable factors.

Stocks generally tend to move with a very high degree of correlation. Investors can get experience of the way properly two stocks correlate by searching at whether or not one outperforms or underperforms the common investor's return through the years. A correlation of one takes place whilst shares circulate in sync with every other and after they pass in opposition to each difference.

The low profile mysterious yet legendary investor Warren H. Lau has finally released his investing books series: Winning Strategies of Professional Investment. Warren H. Lau has spent more than ten years in the investment career, and succeeded through a combined application of fundamental, technical and news analysis.

The Winning Strategies of Professional Investment is a series of investment education books for people who are not experienced to the stock market, and wish to build fast investment knowledge, and make money quickly. This series saves you time by offering the right paths.


Quantum Strategy is the third book in this series. In this book, you will learn about:
- The catalysts that triggers stock prices and ETF prices movement.
- How does asset prices in the open market respond to news; and
- The correlation of stock prices movement in different sectors.

• Language: English
• Publisher: INPress International
• Release date: Apr 1, 2023
• ISBN: 9798215342930

Warren H. Lau

Warren H. Lau is currently C.E.O. of a tech firm, and has many years of experience in overseeing web-based development projects. The main duty of his job is to design and oversee the development of usable websites, mobile sites and mobile apps that are user friendly and immune to cyberattacks; at the same time, lead the marketing team to achieve business success. Before Warren H. Lau begins his career in the technology industry, he spent more than ten years in the investment career, and succeeded through a combined application of fundamental, technical and news analysis. He summarized all his knowledge and experience and published his investment book series: "Winning Strategies of Professional Investment".

Book preview

Quantum Strategy

Correlation Studies of Stocks/ETF Investment

Warren H. Lau

INPRess International

Copyright © Feb 2023 Utopia Online Limited

All rights reserved

No part of this book may be reproduced, or stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without express written permission of the publisher.

Cover design by: Utopia Creative Studio

Printed in the United States of America

To My Family

Contents

Title Page

Copyright

Dedication

Foreword from Mr. King Cho

Introduction to Quantum Strategy

Chapter 1 - Catalysts that Trigger Stock Prices Upwards and Downwards

Chapter 2 - Catalysts that Trigger ETFs Prices Upwards and Downwards

Chapter 3 - Factors That Trigger Stock Price Instantly

Chapter 4 - Factors That Trigger ETF Price Instantly

Chapter 5 - The Fundamental Difference Between Stock Investment And ETF Investment

Chapter 6 - The Pearson Coefficient and Quantum Strategy

Chapter 7 - News is The Immediate Trigger Of All Asset Prices In The World

Chapter 8 - Stock Market Crashes and Correlations

Chapter 9 - Immediate Effect Of Earnings Announcements And Sales Announcements

Chapter 10 - Average Trading P/E Ratio of Equity and Stocks

Chapter 11 - The Long Term ROE Trends And Stock Performance

Chapter 12 - Technology Sector and Correlations Studies

Chapter 13 - Fossil Fuel Sector and Correlations Studies

Chapter 14 - Raw Materials Sector and Correlation Studies

- END -

About The Author

Foreword from Mr. King Cho

Mr. King Cho

It gives me great pleasure to write this foreword for Warren H. Lau's investment works. I have known Warren from his childhood when I used to go to his mother's home to learn English. We have not seen each other for years. When I met Warren's mother again, i learned that he has become an author of many works. The clever little kid I used to know has now grown into a very mature and knowledgeable man with expertise in many fields of studies, especially stock investments. From his works, I found out that he could make very widespread, sophisticated and in depth analyses in stock investments, including new fields of studies in Quantum strategies applied to stock investments. These brilliant analyses are very useful for practical trading and have been proven to be extremely successful in application to real life situations. As a very experienced businessman with a wide network in many fields, I have most certainly learned a lot from him. I am sure to make use of his strategies in my stock investments.

From Mr. King Cho

Chairman of Vision (HK) International Investment Group Limited

Executive Committee Member of Guangzhou Federation of Industry and Commerce (General Chamber of Commerce)

Vice Chairman of Guangzhou Foreign Investment Enterprises Chamber of Commerce

Chairman of Presidium of Guangdong-Hong Kong-Macau-Bay Area Econoimic and Trade Association

Governor and Co-founder of In-heritage Philharmonic Orchestra

Introduction to Quantum Strategy

It takes as little as only one second for any news to change the direction of a stock chart.

Warren H. Lau

In short, Quantum Strategy a new school of investment strategy which is grounded through studying the correlations among stock price movement and different statistically measurable factors.

Stocks generally tend to move with a very high degree of correlation. Investors can get experience of the way properly two stocks correlate by searching at whether or not one outperforms or underperforms the common investor's return through the years. A correlation of one takes place whilst shares circulate in sync with every other and after they pass in opposition to each difference.    

When one stock is going up and the alternative goes down, the two stocks have a perfect negative correlation (-1). The coefficient is negative, which indicates that once the negative correlation between them will increase, the one share that binds to the other declines. If the correlation among two stocks is 1.0, the costs of the stocks flow in parallel with their average expenses.    

This measure is referred to as a correlation coefficient and is used to measure the diploma and path of correlation between  stocks. Many advisers use the equity correlation in advanced portfolio calculations, and it has a price of 1.0 to 10.    

In the case of investments, correlation is a measure that suggests the volume to which the prices of two belongings are relative to their suggest. To find the correlation among  stocks, you need to first determine the average fee of each stock. Using the Pearson correlation coefficient, we will determine how carefully two shares correlate.    

Correlation need to be measured over a period of months, years, or even days to get a feel of ways regularly two or greater shares move collectively. No you could are expecting the marketplace performance for a length as short or so long as this study, however correlation can show instances when unique asset sorts are out of sync with the stock market.    

Investors retaining portfolios in low-correlated property have the opportunity to gain from decrease-risk returns. In the real world, investors who need to preserve portfolio dangers and returns that aren't protected in a portfolio may want to advantage from rebalancing to decrease correlated asset lessons.    

When building our portfolios, it's far best to spend money on stocks, bonds, ETFs and others that do not correlate. In addition to the correlation, the realignment of asset allocation, investment techniques and personnel may trade over the years.    

For most investors, the traditional aggregate of shares and bonds starts offevolved wherein investments with low correlation start. A portfolio isn't always diversified if its holdings are strongly correlated, this means that that we can predict how different holdings will flow if a holding moves in a sure manner. Low-correlated investments draw on a wealthy universe of funding alternatives, both equities and bonds.    

For example, between 1926 and 2013, there has been no correlation among the USA stock marketplace and monthly yields on five-12 months Treasury bills. Bond fees have a tendency to correlate strongly with the stock market, such a lot of traders use bonds to balance their portfolios and manipulate chance. Over time, shares earn extra than bonds, and, even as bonds do not correlate with the marketplace, they play a important function in offsetting fairness danger.    

One of the equipment we can use to lessen portfolio chance is to examine the correlation among our assets and equity correlations. One way to determine the equity threat of your portfolio is to analyze your wealth creation on the idea of its equity correlation. Using fairness correlations will let you determine the level of danger you are taking and the way you may offset that danger.    

Share correlation refers to the relationship among shares and different asset instructions together with bonds and real property. When growing an funding method or choosing stocks on your portfolio, the correlation coefficient is a useful tool.    

The undergo market commenced in March 2000 and examined the precept of balancing a portfolio of low-correlated assets. This article indicates that investors can get the pleasant safety towards undergo markets through the usage of an investment approach with low correlation and a portfolio of balanced property.    

Since large buying and selling volumes are recognized to correlate with large moves within the fee of a business enterprise share, it's miles expected that the relationship between news and absolute returns might be similar to the relation we discover for news and transaction volumes. If the yield circulate is correlated with the portfolio, buyers must wait some periods earlier than adding investments to mitigate the short-time period consequences of the correlation. This take a look at indicates that the correlation among investments and portfolios need to be reviewed.    

Correlation coefficient is a cost that predicts the extent of movement with regards to the opposite of  shares; it measures the relationship among two shares that move in parallel to every other and the power of that courting. Correlation coefficients are utilized by portfolio managers to diversify portfolios and with the aid of traders to alternate assets based totally at the tremendous or negative correlation between the assets that pass together.    

Share correlation describes the relationship that exists between  shares and their respective charge movements. For investors, correlation is beneficial when looking to explain the movement of an asset or comparing a protection with a benchmark index to show the connection among variables. Comparing an person inventory index is one manner to apply the share correlation.    

Share correlation also refers to the relationship between shares and other asset classes along with bonds, actual property, and so on. In change, correlation has many distinctive uses, and plenty of what investors do is based on analysis of the relationships among distinctive shares and foreign exchange markets. The essential gain of alternate correlation is to determine whether or not there may be a dating among  variables and what kind of dating it's miles.    

If the correlation is smaller or extra than 1, something is incorrect with the calculation. A fee of 0 approach that the 2 variables aren't correlated and the relationship cannot be determined. When  variables have a correlation, it's miles beneficial for traders to realize how sturdy the correlation is, whether or not it is a fantastic correlation or a poor correlation.    

Correlation evaluates the relationship among the variables and the various factors that cause this courting. Correlation is used while the variables have a linear relationship to every other. Using scatter plots, we will examine the connection of the variables to decide whether they may be correlated or not.    

Cause is the reason for the correlation, but it isn't the only possible rationalization. The maximum normally used direct diversification measurement for diversification is the approach of correlation.    

The correlation seems to weaken while you're taking a long function in a inventory and a short position in other shares. The moment you watched A is correlated with C, the entirety is first-rate. If the correlation falls back to the found imply or average, you have got made a earnings.    

In the case of investments, correlation is a degree that indicates the degree to which two assets are relative to their imply prices. The correlation between  asset lessons may be measured by taking the long-term monthly go back of an asset magnificence and comparing it to every other. A correlation coefficient of 1 indicates a perfect high-quality correlation between the rate of two stocks, this means that that they exchange the equal quantity in the equal direction.    

Correlation ought to be measured over a period of months, years or even days to get a sense of the way frequently  or more stocks flow collectively. In pair buying and selling you may see when  fee actions are correlated and have a tendency to move in parallel. An investor can get a experience of whether  shares are associated by using searching at whether or not a inventory over the years outperforms or underperforms the average go back for investors.    

Shares in the same region tend to have a stronger correlation than the ones in unrelated sectors. The reason to observe the correlated market coefficients is to peer how the marketplace have to circulate. The first-class manner to apply correlation tools is to determine the particular chance of an asset elegance.    

Correlation, also known as regression analysis, determines how based and unbiased variables are related. By dividing the covariance of the 2 variables in question by means of the made from two standard deviations, the calculated correlation coefficient determines how likely property are to transport in a portfolio in parallel. The formulation for the calculating of correlation coefficient is the Pearson correlation coefficient ( PCC ), a statistical analysis approach named after Victorian mathematician Karl Pearson.    

Portfolio chance is calculated by means of calculating the hazard of a single investment as a preferred deviation from the real go back of the portfolio through the years. Because the correlation among  investments shifts through the years, the higher the volatility, the more the risk inside the portfolio. Keep in mind that the correlation coefficient can exchange and is a degree of a alternate of coronary heart that happens when the portfolio's chance profile adjustments.    

Diversified portfolios are finished through making an investment in uncorrelated assets over the years, and if there are uncorrelated belongings inside the portfolio, they may be extra volatile than correlated investments. Diversifiable dangers are decreased by means of addressing the correlation coefficient among assets in a portfolio.    

Another way to mitigate that is to encompass belongings which have very little correlation with the stock market. Positively correlated investments are riskier because there may be no unmarried asset that undoubtedly correlates with any other investment.    

For example, an investment analyst may additionally determine to research whether or not an investment will growth in value over the years and to discover whether there's a strong correlation with the stock marketplace (correlation coefficient), that is one of the standards to don't forget. The analyst can research whether or not the funding will growth in value and cost over the years and wants to discover whether it has the strong correlation or not.    

In the actual international, an investor planning to gain a portfolio of non-portfolio risk returns could benefit from a rebalancing to a lower correlated asset class. If a inventory investment yields strong returns however is much less correlated with the one you acquire, hedging ought to decrease your returns. 

Chapter 1 - Catalysts that Trigger Stock Prices Upwards and Downwards

Investors and buyers are constantly seeking out catalysts due to the fact they constitute a completely unique possibility to advantage from large price actions.

Catalysts are particular special activities which have actual capacity and can push down a organization's share fee for a short, multiplied length. There are eleven major catalysts that can flow groups "percentage costs might not be able to pass the share charge as fast as expected.    

For instance, whilst a corporation releases an profits record, an earnings record is an reputable monetary document issued with the aid of a business enterprise that suggests the company's prices, profits and overall income and differs from expectations, it's far a stock catalyst that can exchange prices. If a inventory misses its profit expectancies, it could no longer omit as a whole lot because the complete market expects, however it is able to still affect costs.    

In fairness markets, a catalyst is new records