Split S&P 500’s ‘Comm’ Stocks into semesters

In this analysis, we will look at the correlation in performance between the first and second semesters of the various stocks in the S&P500 index, starting from 2010.

The analysis is carried out by finding those correlations that support Contrarian Investing, an investment strategy that involves buying and selling against the prevailing sentiment over time. The basic idea is that a certain crowd behaviour among investors can lead to exploitable valuation errors in securities markets.

For instance, widespread pessimism about a stock can lead to a price so low that it overestimates the company’s risks and underestimates its chances of returning to profitability. Identifying and buying such distressed stocks and selling them after the company has recovered can lead to higher-than-average gains.

We will consider the Communication Services Select Sector (COMM SVCS), excluding stocks whose historical series starts after 2010. We will then identify the stocks that had a negative performance in the first half of the year, and then check in the second half of the year whether their value has appreciated.

Symbol	Win Ratio	Average Return	Total trades
FOX	0,83	6,9%	6
FOXA	0,83	7,8%	6
VZ	0,67	9,5%	6
DISCK	0,50	0,6%	6
DISH	0,50	-0,8%	6
DISCA	0,33	1,2%	6
OMC	0,80	10,3%	5
VIAC	0,40	12,8%	5
DIS	1,00	22,5%	4
GOOGL	1,00	23,1%	4
LYV	0,50	10,3%	4
T	0,50	1,9%	4
IPG	1,00	36,5%	3
TTWO	1,00	27,5%	3
ATVI	0,67	3,8%	3
CMCSA	1,00	17,3%	2
EA	1,00	16,3%	2
FB	1,00	16,3%	2
NFLX	1,00	32,3%	2

Table 1. The stocks are listed according to the number of times a negative performance occurred in the first semester, summarising through the Win Ratio and the average return, what happened in the second semester.

By analysing the data, the following considerations can be made:

2/19 stocks have a WR below 50%.
4/19 have a WR of 50%
13/19 have a WR above 50%.
In total, out of 79 observations, 56 half-years ended positively after performing negatively in the first half, resulting in a WR of 71%.
Only 1 in 19 stocks has a negative average return
In total, the 79 half-years observed produce an average return of 13.5%.

This investment strategy acquires strength and relevance from the good quantitative data that are derived from and support it.

However, the one presented here is the simplest form of contrarian investment: it can be improved by tying it to further distinctions of stocks, identified by financial metrics such as book value or P/E ratio, volumes, sentiment, earnings forecast. It also becomes a value investment, looking for mispriced investments and buying those that appear to be undervalued by the market.