Equity Research

Netting income

For fundamental equity investors, the financial statement is the launchpad for the search for value. True, quants use financial statements too. But they spend less time on what the numbers mean, than on what they are. To produce a financial statement that adequately captures the economic (not GAAP or IFRS) position of a company is no mean feet and draws upon accounting, domain knowledge, and artistry. Data scientists and machine learning engineers are more than acutely aware of the chore of data processing and cleaning.


The oil-to-gas ratio was recently at its highest level since October 2013, as Middle East saber-rattling and a recovering global economy supported oil, while natural gas remained oversupplied despite entering the major draw season. Even though the ratio has eased in the last week, it remains over one standard deviation above its long-term average. Is now the time to buy chemical stocks leveraged to the ratio? Or is this just another head fake foisted upon unsuspecting generalists unaccustomed to the vagaries of energy volatility?