What is Quantamental? and why is it important in state-of-the-art Quantitative Trading?


As stated in recent news, Quantamental investing strategies shine in the covid world since they combine quantitative and fundamental strategies.

“Low-cost passive investments contributed to the advance of Quantamental as active managers seek to reduce portfolio risk and justify their fees.”

By David Whitehouse, from https://www.thetradenews.com/

The term Quantamental has its origin from two words, i.e., it’s coined from [Quant]titative and [Fund]amental. Quantamental combines two investment techniques (quantitative approaches and basic/fundamental data analysis methods). The quantitative process involves using computers, complex mathematical calculations to analyze company data for insight into the growth, cash flow, and potential risk.

Quantitative models use computer models with a massive amount of historical data and real-time (aka high-frequency data). Quants try to find inefficiencies to be exploited and profit from them.

The search curve in Google has increased since 2017, as you can see in the next chart.

Quantamental Google Trends
Quantamental Google Trends

What is Quantamental?

Quant analysts focus on mathematical equations, finance, and market behavior to generate their insights. When a model is developed through this approach, it’s usually fully automated to react as market value moves up and down. This approach also takes advantage of the statistical edge using advanced data processing resources available in this current world.

On the other hand, while the quantitative approach focuses on stringent measures and techniques on a large scale handled by computer programs, the fundamental trading principles involve evaluating financial records of the company and a variety of other sources that require human intelligence and experience. Other sources include finding out significantly the strength and weaknesses of similar competitors such as net-worth, pricing, customer relation, etc. An easy-to-find instance would be comparing the price-to-earnings (P/E) ratio for multiple companies in the same industry. It will help make informed decisions to stay above the competition.

For instance, forex Quantamental investors use the following approach for getting the fundamental information of the biggest economies on earth, collecting the data through Web Scrapping of Financial News in pages like forexFactory.


Why is it important in state-of-the-art Quantitative Trading?

Even as the term itself is a convenient marketing word, it still has an intriguing potential to be explored in your quant strategy.

Since fundamental traders and investors have to deal with a very competitive environment, they are prone to reduce fixed costs (high profile employees) and generate more appealing variable fees for performance. Thus, the increasing application of quantitative techniques reduces human error and crunch more information to make better-informed decisions.

These models not only work in the signal of buying or selling an asset. They are used for risk management as well. That is analyzing individual company cash flows, growth, dividends, and even unstructured data like SEC Fillings using Natural Language Processing.

In summary, Quantamentalists are fundamentalists who make use of quantitative techniques for a more informed direction. They may employ data scientists or Machine Learning experts to build algorithms that scour through large volumes of data to look for trends, providing the fundamental human stock pickers with a more concise form of information to work on and analyze further. This approach is a linker that bridged the gap between human creativity and machine effectiveness for better results.

#StockMarket #DataAnalytics #QuantTrading #Quantamental #fundamentalists #quantamentalist #Trading2021

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