Quadrix is a proprietary stock-rating system developed by Horizon Investment Services, which uses over 80 variables to compute scores that rank stocks in six categories: Momentum, Quality, Value, Financial Strength, Earnings Estimates, and Performance. The system then combines these scores into an Overall score for each stock. The scores are calculated on a percentile basis, with 100 being the best possible score and 0 being the worst. The Quadrix system is designed to aid investors in identifying high-quality stocks that are attractively priced. It focuses on a holistic view of a company, taking into account various aspects of its business, financial health, and market performance. The Quadrix system was developed in the late 1990s as a tool for stock selection in response to the growing complexity of the stock market and the need for a more systematic, data-driven approach to stock analysis. The system has been continuously refined over time to improve its predictive accuracy and relevance in changing market conditions. Its development was driven by the belief that a multi-faceted analysis approach would yield better results than a single-metric focus. The Quadrix system, therefore, considers a broad range of factors, ensuring a more comprehensive evaluation of a company's worth. The Quadrix system uses a multi-factor quantitative approach to select stocks. The system calculates percentile scores for each of more than 80 variables across six categories. This approach allows investors to compare stocks across a spectrum of characteristics rather than focusing solely on a single metric. The methodology revolves around the belief that a diversified approach, incorporating various aspects of a company's financials and operations, yields more reliable and consistent results than a singular focus. The Quadrix framework provides a quantifiable way to evaluate stocks, making it easier for investors to make informed decisions. Momentum in the Quadrix system refers to both price momentum and earnings momentum. Price momentum is based on the stock's recent price performance, while earnings momentum considers the rate of change in a company's earnings. Stocks with strong momentum are typically favored as they often continue to outperform. Quality measures the overall health and strength of a company's business. This includes factors such as consistent profit margins, robust returns on equity, and sustainable debt levels. High-quality companies are generally more resilient in challenging market conditions and have a better chance of delivering strong long-term returns. Value in the Quadrix system refers to the relative attractiveness of a stock's price. It includes a number of commonly used valuation metrics, such as price-to-earnings, price-to-sales, price-to-book value, and price-to-cash flow ratios. Stocks that are deemed undervalued according to these metrics often present good investment opportunities. Financial strength refers to a company's financial stability and flexibility. This includes factors like debt levels, interest coverage, and profit margins. Companies with strong financial health are generally better positioned to weather economic downturns and invest in growth opportunities. Earnings estimates consider analysts' expectations for a company's future earnings. This includes the level and direction of recent revisions to earnings estimates. Stocks with rising earnings estimates often see their share prices rise as well. Performance measures a stock's risk-adjusted performance relative to other stocks. This includes measures of price volatility and market risk, or beta. Stocks with strong risk-adjusted performance are generally more likely to deliver strong returns with less volatility. The Quadrix system assigns different weights to each factor based on its predictive power. Some factors may have a greater impact on the overall score than others. The exact weighting algorithm is proprietary to Horizon Investment Services. To make the scores comparable across different factors, the Quadrix system standardizes the raw scores using a statistical technique called percentile ranking. This process ensures that each score reflects the relative standing of a stock compared to all other stocks in the database. The system then aggregates the standardized scores for each factor within a category to derive the category score. The category scores are further aggregated, using a proprietary weighting scheme, to compute the overall Quadrix score for each stock. While the Quadrix system provides a robust framework for selecting stocks, it's essential to remember the importance of diversification. Investors should use the Quadrix scores as one tool among many in a diversified investment strategy, which should also consider factors like risk tolerance, investment goals, and market conditions. Interpreting Quadrix scores is straightforward due to their percentile-based structure. A score of 100 represents the top-performing stock in a given category, while a score of 0 represents the bottom performer. As such, higher scores indicate stocks that are potentially more attractive investments, according to the criteria set by the Quadrix system. However, while high scores can signal strong potential, they do not guarantee success. Market conditions, industry trends, and company-specific factors can impact a stock's performance beyond what the scores might suggest. Investors should use Quadrix scores as part of a broader analysis that includes other data and market insights. For long-term investors, the Quality, Value, and Financial Strength scores can provide valuable insight into the fundamental health of a company. These scores can help investors identify companies that are likely to thrive over the long run, providing steady returns. Quadrix scores can be used to compare companies within the same sector or industry. This can be particularly useful for sector-based investing, where the goal is to identify the most attractive stocks within a specific industry. The Momentum and Performance scores can be particularly useful in this context, as they reflect recent trends that may be industry-specific. While market timing is generally considered a risky strategy, some investors may still use the Earnings Estimates and Momentum scores to try to time their investments. These scores can indicate potential short-term movements in a company's stock price. While the Quadrix system provides a robust and comprehensive framework for evaluating stocks, it should not be the sole basis for investment decisions. The system, like all models, has limitations and can't account for all possible factors that may impact a stock's performance. For example, the system may not fully account for macroeconomic factors, industry trends, or company-specific news events. Furthermore, the system's reliance on historical data means it may not accurately predict future performance, especially in fast-changing industries or during periods of economic uncertainty. Quadrix scores can be instrumental in building a portfolio that aligns with an investor's risk-reward preferences. For instance, investors seeking higher returns and willing to tolerate more risk might focus on stocks with high Momentum and Performance scores. Conversely, conservative investors might prefer stocks with high Quality and Financial Strength scores, indicating stable earnings and strong balance sheets. The holistic nature of the Quadrix system encourages a diversified portfolio. By considering stocks with high scores across different categories, investors can create a well-rounded portfolio that balances growth potential, value, and financial stability. This can help to mitigate risk and potentially enhance returns over the long term. Quadrix scores change over time as new data becomes available and market conditions evolve. Therefore, it's crucial for investors to monitor their portfolios regularly and rebalance as necessary to maintain their desired asset allocation. Rebalancing might involve selling stocks that have fallen in score and buying those with rising scores. Investors can also use Quadrix scores to evaluate their portfolio's performance. For instance, a portfolio's overall performance could be compared to the average scores of its constituent stocks. If the portfolio's performance lags the average Quadrix scores, it might indicate a need for adjustment. Quadrix scores can help investors adapt their portfolios to changing market conditions and economic cycles. For instance, during a bull market, investors might focus on Momentum and Performance scores to capitalize on rising stock prices. During a bear market, Quality and Financial Strength scores might take precedence, as they indicate companies that are likely to withstand economic downturns. Fundamental analysis involves the examination of a company's financials, industry position, and market conditions to estimate its intrinsic value. While Quadrix incorporates elements of fundamental analysis in its Quality, Value, and Financial Strength scores, it distinguishes itself by also considering momentum and earnings estimates, thus providing a more comprehensive view. Technical analysis primarily focuses on statistical trends gathered from trading activity, such as price movement and volume. Unlike technical analysis, which is purely based on market activity, Quadrix considers a variety of factors, including financial data and earnings estimates. This broader approach might provide a more well-rounded view of a company's potential for success. Quantitative analysis uses mathematical and statistical modeling to understand behavior and predict outcomes. The Quadrix system is a form of quantitative analysis, using a proprietary algorithm to calculate scores based on more than 80 variables. However, Quadrix also provides an easy-to-understand scoring system that simplifies the interpretation of results, making it more accessible for the average investor. As financial markets evolve and new types of data become available, Quadrix may incorporate additional factors into its scoring system. This could include data related to environmental, social, and governance (ESG) factors, customer satisfaction, or employee engagement. These additions could make the system even more comprehensive and reflective of a company's overall health and potential. Advancements in machine learning and artificial intelligence could lead to enhancements in the Quadrix scoring algorithm. This might involve more sophisticated weighting of factors, better handling of outliers, or improved adaptability to changing market conditions. Such enhancements could improve the predictive accuracy of the scores. Looking forward, we might see increased integration of the Quadrix system with other investment tools and technologies. For example, robo-advisors could use Quadrix scores to help automate investment decisions, or virtual reality could be used to visualize Quadrix data in new and intuitive ways. Quadrix is a comprehensive stock-rating system that provides percentile scores for stocks across six categories: Momentum, Quality, Value, Financial Strength, Earnings Estimates, and Performance. These scores can help investors identify potentially attractive investment opportunities and make more informed decisions. Quadrix provides a multi-faceted view of a company, considering a broad range of factors related to its financial health and market performance. While it offers a robust framework for evaluating stocks, it should be used as part of a broader analysis that considers other data and market insights. Investing is a complex endeavor that requires careful analysis and thoughtful decision-making. By providing a holistic view of a company, Quadrix can be a valuable tool for investors. However, it's crucial to incorporate a range of perspectives and data sources into your investment strategy. While tools like Quadrix can provide valuable insights, it's always a good idea to seek professional advice when making investment decisions. A financial advisor can help you understand your personal financial situation, investment goals, and risk tolerance, and can provide guidance on how to use tools like Quadrix most effectively.What Is Quadrix?
How Quadrix Works
Framework for Selecting Stocks
Factors Influencing the Quadrix Scores
Momentum
Quality
Value
Financial Strength
Earnings Estimates
Performance
Calculation of Quadrix Scores
Weighting of Factors
Standardization of Factor Scores
Aggregation of Factor Scores
Importance of Diversification
Using Quadrix for Investment Decision-Making
Interpreting Quadrix Scores
Strategies for Incorporating Quadrix Scores into Investment Decisions
Long-Term Investing
Sector-Based Investing
Market Timing
Limitations and Potential Drawbacks of Relying Solely on Quadrix Scores
Quadrix in Portfolio Management
Portfolio Construction Using Quadrix Scores
Assessing the Risk-Reward Profile of a Portfolio
Maintaining an Optimal Balance of Assets
Ongoing Portfolio Monitoring and Adjustments
Periodic Rebalancing
Portfolio Performance Evaluation Using Quadrix Scores
Adapting to Market Conditions and Economic Cycles
Comparing Quadrix to Other Stock Selection Methodologies
Fundamental Analysis
Technical Analysis
Quantitative Analysis
Future Developments and Improvements in Quadrix
Incorporation of Additional Factors
Enhancements to the Scoring Algorithm
Integration With Other Investment Tools and Technologies
Final Thoughts
Quadrix FAQs
Quadrix is a quantitative stock rating system that provides an objective and consistent approach to evaluating and ranking stocks.
Quadrix evaluates stocks based on more than 90 factors that are grouped into six categories: momentum, quality, value, financial strength, earnings estimates, and performance.
Quadrix is primarily used by individual investors and investment advisors who are looking for a systematic and disciplined approach to selecting stocks.
Quadrix provides investors with a comprehensive and objective assessment of a stock's strengths and weaknesses. This can help investors identify high-quality stocks that have the potential to outperform the market.
While Quadrix can provide valuable insights into a stock's past performance and current fundamentals, it is important to note that past performance is not always indicative of future results. Investors should use Quadrix as one tool in their investment analysis and consider other factors, such as market trends and economic conditions, when making investment decisions.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
