Factors Directory

Quantitative Trading Factors

Normalized operating profit (Z-Score)

Growth FactorsFundamental factors

factor.formula

Normalized operating profit (Z-Score):

in:

  • :

    Rolling year (TTM) operating profit at time t.

  • :

    The mean of the rolling annual (TTM) operating profit for the T quarters before time t. The time window for the mean calculation is [t-T, t-1], excluding the current time t.

  • :

    The standard deviation of the rolling year (TTM) operating profit for the T quarters before time t. The time window for standard deviation calculation is [t-T, t-1], excluding the current time t.

  • :

    The length of the time window for the lookback period, the default is T = 6 quarters. It can be adjusted according to the requirements of the lookback period length.

factor.explanation

This factor measures the degree of deviation of a company's current profitability from its historical profitability by calculating the Z-Score of operating profit. A positive value indicates that current profitability is higher than the historical average, while a negative value indicates the opposite. Standardization makes profitability comparable between different companies, while also eliminating the historical trend of a company's own profitability and focusing more on short-term changes in profitability. It should be noted that this factor is essentially a relative indicator that relies on the company's own historical profit data, so it may not be directly comparable between different industries. It is usually necessary to combine it with the industry average or perform standardization within the industry before use. In addition, the effectiveness of this factor depends on the selected time window T. A time window that is too short may result in excessive noise, and a time window that is too long may not capture short-term changes in profitability.

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