Deviation is the difference between the value of an observation and the mean of the population in mathematics and statistics.
Market Capitalization is the total dollar market value of all of a company’s outstanding shares. It is calculated by multiplying a company’s shares outstanding by the current market price of one share. If, for instance, a company has 50 million shares outstanding, each with a market value of Rs.200, the company’s market capitalization is Rs.10 billion (50,000,000 x Rs.200 per share).
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investors find this information useful because companies that fall within the same market capitalization category (small, mid, or large cap) often have similar performance characteristics.
Range is the difference between a stock’s high price and low price for a particular trading period, which can either be at the end or beginning of a trading day or any particular day, month, or year. When a stock breaks through or falls below its trading range after several days of trading in a range, it usually means there is momentum (positive or negative) building up.
Spread is the difference between the bid (price available for an immediate sale) and the ask price (price available for immediate purchase) of a security or asset.
P/E Ratio is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share. It is calculated as follows:
Market Value per Share Earnings Per Share (EPS).
A higher P/E ratio means that investors are paying more for each unit of income and indicates that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.
If a company was currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay Rs 20 for Rs 1 of current earnings.
EPS serves as an indicator of a company’s profitability. It relates income to ownership on a per share basis, and is used in evaluating share price.
It is calculated as: (Net Income – Dividend on Preference Share) / Average Outstanding Shares
The Money Flow Indicator is used as a measure of the strength of money going in and out of a security and can be used to predict a trend reversal. The MFI is range-bound between 0 and 100. It shows money flow on up days as a percentage of the total of up and down days. It is calculated as follows: Typical Price = (High + Low + Close) / 3 Money Flow = Typical price x Volume Money Ratio = Positive Money Flow/Negative Money Flow. Positive money values are created when the typical price is greater than the previous typical price value. The sum of positive money over the number of periods used to create the indicator is used to create the positive money flow – the values used in the money ratio. The opposite is true for the negative money flow values. Money Flow Index = 100 – (100/ (1 + Money Ratio)) MFI is used as an oscillator. A value of 80 is generally considered overbought, or a value of 20 oversold. For the purposes of the MFI, “money flow”, i.e. dollar volume, on an up day is taken to represent the enthusiasm of buyers, and on a down day to represent the enthusiasm of sellers. An excessive proportion in one direction or the other is interpreted as an extreme, likely to result in a price reversal.
Moving averages are used to smooth out short-term fluctuations, thus highlighting longer-term trends or cycles
The Price Oscillator is an indicator based on the difference between two moving averages, and is expressed as either a percentage or in absolute terms. The number of time periods can vary depend on a user’s preference. For daily data, longer moving averages might be preferred to filter out some of the randomness associated with daily prices. For weekly data, which will have already filtered out some of the randomness, shorter moving averages may be deemed more appropriate.
Developed by Marc Chaikin, the Chaikin Money Flow oscillator is calculated from the daily readings of the Accumulation/Distribution Line. The basic premise behind the Accumulation Distribution Line is that the degree of buying or selling pressure can be determined by the location of the Close relative to the High and Low for the corresponding period (Closing Location Value). There is buying pressure when a stock closes in the upper half of a period’s range and there is selling pressure when a stock closes in the lower half of the period’s trading range. The Closing Location Value multiplied by volume forms the Accumulation/Distribution Value for each period. If Chaikin Money Flow is greater than zero, it is an indication of buying pressure and accumulation. The longer the oscillator can remain above zero, the stronger the evidence of accumulation. Extended periods of accumulation or buying pressure are bullish and indicate that sentiment towards the security remains positive. Not only should the oscillator remain above zero, but it should also be able to increase and attain a certain level. The more positive the reading is, the more evidence of buying pressure and accumulation.
The Chaikin Oscillator is a technical analysis tool that compares the day’s closing price to the intraday high and intraday low prices. It is calculated as- volume x [(close-low)- (high-close)] / (high – low). The figure is calculated daily and then a running total is kept. The oscillator is created by comparing the three-day moving average to the ten-day moving average of the Accumulation/Distribution Line.
The book value of an entire company is its shareholders’ equity. Shareholders’ equity is the company’s assets minus its liabilities. The Book Value is calculated from the Balance Sheet. If a company’s shareholders’ equity is Rs.300, 000, the book value of the company is Rs.300, 000. Book Value is therefore the total value of the company’s assets that shareholders would theoretically receive if a company was liquidated. Also, by being compared to the company’s market value, the book value can indicate whether a stock is under or overpriced.
To calculate Book Value per share, you divide the Book Value by the number of shares outstanding at the date of the balance sheet. The diluted number of shares can also be calculated by dividing the latest quarter net income by the diluted earnings per share in the latest quarter.
Dividend Yield measures how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. It is calculated as follows = Annual Dividends Per Share Price per Share Dividend yield shows how much cash flow you are getting for each dollar invested in an equity position. Investors who require a minimum stream of cash flow from their investment portfolio can secure this cash flow by investing in stocks paying relatively high, stable dividend yields. For example, if two companies both pay annual dividends of Rs.10 per share, but Company A’s stock is trading at Rs.100 while Company B’s stock is trading at Rs.200, then Company A has a dividend yield of 10% while Company B is only yielding 5 %. Thus, assuming all other factors are equivalent, an investor looking to supplement his or her income would likely prefer Company A’s Stocks over Company B.
Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at operating margin to determine the quality of a company, it is best to look at the change in operating margin over time and to compare the company’s yearly or quarterly figures to those of its competitors. If a company’s margin is increasing, it is earning more per dollar of sales. It is calculated as: Operating Income/Sales. For example, if a company has an operating margin of 15%, this means that it makes Rs.0.15 (before interest and taxes) for every dollar of sales.
Accumulation Distribution is a momentum indicator that attempts to gauge supply and demand by determining whether investors are generally “accumulating” (buying) or “distributing” (selling) a certain stock by identifying divergences between stock price and volume flow. It is calculated as follows = ((Close – Low) – (High – Close)) / (High – Low) x Period’s volume. For example, many up days occurring with high volume in a downtrend could signal that the demand for the underlying is starting to increase.
A Commodity Channel Index (CCI) helps determine when an investment vehicle has been overbought or oversold. The Commodity Channel Index, first developed by Donald Lambert, quantifies the relationship between the asset’s price, a moving average (MA) of the asset’s price, and normal deviations (D) from that average. It is calculated as follows: CCI = Price – MA .015 x D It is also used as an indicator to determine cyclical trends in not only commodities, but also equities and currencies. The assumption behind the indicator is that commodities (or stocks or bonds) move in cycles, with highs and lows coming at periodic intervals.
The Chande Momentum Oscillator is created by calculating the difference between the sum of all recent gains and the sum of all recent losses and then dividing the result by the sum of all price movement over the period. The oscillator is similar to other momentum indicators such as the Relative Strength Index and the Stochastic Oscillator because it is range bounded (+100 and -100). The security is deemed to be overbought when the momentum oscillator is above +50 and oversold when it is below -50.
The Relative Volatility Index (RVI) is based on the Relative Strength Index (RSI). Whereas the RSI uses the average price change, the RVI uses a 9 period standard deviation of the price. The Relative Volatility Index is usually combined with MACD to yield buy and sell signals. A buy signal is indicated when the MACD rises above its signal line and the RVI is greater than 50%. A sell signal is indicated when the MACD falls below its signal line and the RVI is less than 50%. The Relative Volatility Index is calculated by first computing rolling standard deviations for the daily highs and then calculating rolling standard deviations for the daily lows. Next, each of these lines is smoothed by an exponential moving average. The final indicator is then calculated as the smoothed standard deviation of high values divided by the sum of the smoothed standard deviations of high and low values:
Standard Deviation is the measure of the variability (volatility) of a security, derived from the security’s historical returns, and used in determining the range of possible future returns. The higher the standard deviation, the greater the potential for volatility and the greater the risks. For example, take two stocks. Stock A historically returns 5% with a standard deviation of 10%, while Stock B returns 6% and carries a standard deviation of 20%. On the basis of risk and return, an investor may decide that Stock A is the better choice, because Stock B’s additional percentage point of return generated (an additional 20% in dollar terms) is not worth double the degree of risk associated with Stock A.
The Relative Momentum Index is based on a ratio of the average upward changes to the average downward changes over a given period of time. The individual changes are calculated for the given number of days. The function has a range of 0 to 100 with values typically remaining between 30 and 70. Higher values indicate overbought conditions while lower values indicate oversold conditions
Weighted moving average is a type of moving average that assigns higher weights to price data that is more recent. The underlying assumption of weighted moving average is that recent data is more relevant than the past data. The weighted moving average is calculated by first taking the number of periods you wish to analyze as the weight for today’s price. Yesterday’s price would use today’s weight -1 and so on and so forth for the number of periods. You then divide the sum of the weighted prices by the sum of the weights. Look at the example below. Suppose we look at the last four stock prices and calculate a 4-period WMA. The calculation would be as follows: