quality minus junk
What it checks
Score a company on four 'quality' dimensions — profitability, growth, low debt, dividend payout. The top 25% combo go long, the bottom 25% go short. Hold 3-12 months.
Mechanism
Composite QMJ score combining profitability (GP/A), growth (4Q YoY GP), safety (-D/E), and payout (|div|/NI), each ranked over trailing 8 quarters. Long top-quintile (composite percentile >= 0.75), short bottom-quintile (<= 0.25). AFP 2019 document +4-6% annual alpha on the long-short pair. Distinct from the existing #21 qmj which uses only GP/A + 12m momentum.
Signal rule
Mean percentile of 4 sub-factors >= 0.75 (LONG) or <= 0.25 (SHORT) over trailing 8 quarters (T+1 after 45d filing lag) -> hold 60/126/252 trading days.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
income_statementsWorker data table — see services/worker schema.
balance_sheetsWorker data table — see services/worker schema.
cash_flowsWorker data table — see services/worker schema.
Expected edge
- Paper alpha
- +4-6%/yr
- Paper window
- T+45d to T+252d
+4-6%/yr on long-short QMJ pair (AFP 2019).
Example tickers where this is likely to fire
Illustrative only — the signal fires based on the live data, not a fixed list.
Related families
qmjQualityQuality-Momentum (Asness-Frazzini-Pedersen 2019 QMJ): combine quality (gross profit / assets, ROE) with momentum — long when both are in their respective top buckets relative to their own history. The canonical cross-sectional implementation would rank across the universe; we approximate with self-relative quintiles, with fundamentals available-date lagged 45d to respect filing latency.
novy marx gross profitabilityQuality(Revenue − COGS) / total_assets — gross profitability — predicts cross-sectional returns as strongly as book-to-market, and has been the mainstream "profitability" leg of the FF5 model since 2015. Distinct from QMJ which composites profitability+growth+safety; standalone GP is the high-beta version that explains more of the cross-section. Status: alive. Decay debate is whether the spread has narrowed (yes: 30-50%) but the sign is intact and replicable across vendors.
hou xue zhang q factorQualityq-factor 2-component composite: low investment (|capex|/total_assets) and high profitability (ROE = net_income/total_equity). HXZ 2015 document the q-factor outperforms Fama-French 4-factor on most anomaly tests; the long top-quintile / short bottom-quintile pair earns +4-5%/yr post-1990.
altman z scoreQualityAltman's Z-score combines five accounting ratios (working-capital/TA, retained-earnings/TA, EBIT/TA, market-cap-equity/total-liab, sales/TA) into a discriminant score that separates safe (Z>2.99) from distressed (Z<1.81) firms. The market-cap-equity X4 variant (vs Altman's original book-equity) is a stronger forward predictor and is the modern usage. Hilscher-Wilson 2017 J. Banking confirm the score still discriminates default risk in 2000s data.
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