How to approach predicting company fundamentals

This article refers to a problem on Auquan’s platform. To follow along check out the details here: https://quant-quest.auquan.com/competitions/uk-data-science-varsity

Introduction

In our first sample approach for this competition, we’re going to take a look at how you might go about tackling a prediction problem. The aim isn’t going to be to produce the best answer we can. Instead, we will go through the steps that you might take in thinking about this kind of problem and then to produce an answer.

As a recap, in this problem we have access to fundamental data for a selection of companies in the S&P 100. The aim is to produce a model that can predict future revenue and income, based on previous figures. The idea being that if you knew future performance, you would be able to better value a given stock or company.

Working through a solution

If you’ve been following these articles for a while now, you will start to see a familiar structure in how we tackle these problems. Making the actual model is normally very quick and a lot of our time is spent working towards that point. This process helps us to understand the data and prepare it in a way that gives us the best chance of creating a useful model.

The steps we are going to go through today are as follows:

• Data Exploration
• Dimensionality Reduction
• Feature Engineering
• Clustering
• Creating a Prediction Model

(If you don’t want to read the whole guide, this would be a good summary or take away!)

As you go through this approach, remember that the implementation that we’ve done here is just an example. It is almost certain that there are better ways to do each step, so you should experiment. For example, at the end, we train a linear regression model but this might not be the best approach. Instead, you could try non-linear or parametric methods and play around with the hyperparameters. Finally, in this approach, we are only considering revenue, but the same steps apply for income.

The full version of this article isn’t available on medium. Read the rest on our blog — https://auquan.com/community/tutorials/how-to-structure-an-approach-to-predicting-company-fundamentals/#post-32

If you want to put this into practice, sign up for the UK Data Science Varsity here: links.auquan.com/DSV