Quantitative Stock Portfolio And HSI300Future Hedging Strategy

China’s securities market developed very fast since it was founded20years ago.There are more than2,000listed companies in this market,investors have become more rational and value investment is increasinglyrecognized. Value investment pays more attention to the fundamentals ofthe companies. Financial indicators reflect the financial information andthe operation of the companies which can be obtained relatively easilythrough the annual report. Research shows that the stock price fluctuatesaround the stock value and sometimes it is undervalued due to marketsentiment or other factors. In the long term, the companies undervalued,especially which with good quality and operating, will eventually gothrough the process of return value. We believe excess earnings can beobtained by investing these companies. We build a two-factor model usingquantitative methods and rank all the listed companies by EBIT/(netcurrent assets+net fixed assets) and EBIT/EV. Then we build the stockportfolio with top30companies in this ranking(without financial stocks).To induce the influence of the absence of financial stocks, we also build aportfolio including financial stocks according to the weight of HSI300.April16,2010, China HSI300Stock Index Futures contracts whichhadprepared and simulated for many years started trading officially inChinaFinancial Futures Exchange. HSI300Stock Index Futures’ tradinghaschanged the situation that China securities market can only be unilateral long market in the past to long and short bilateral market at present. In thisthesis, our strategy locks the risk through "hedging" and use "leverage" toenlarge the income by using stock index futures.In addition, we developeda strategy to define bull market and adjust our positions according to themarket.We conduct backtesting for our strategy based on historical data andthe results show that the basic investment strategy can hedge the systemicrisk of the market and get a stable income. At the same time, improvedinvestment strategy can effectively increase portfolio returns.