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Unusual activity (Part 1)

Tuesday, October 7, 2014 - 22:13

The relaunched Business Times will carry a new daily table called "Unusual Activity". It's probably worth explaining, if only to pre-empt the inevitable cries of "That's not unusual at all!"

The theory behind that table goes something like this: If a stock's share price changes rapidly and its volume is higher than normal, something might be going on with the stock. Both conditions have to be met, because a one-cent stock may have a huge percentage change in a day with only a handful of trades or a normally illiquid stock may appear to have a volume surge simply because of its low base, but neither would typically be considered unusual activity.

So what we did was to combine both variables. We start by creating an Unusual Activity index (let's call it UA). UA is calculated by multiplying the absolute one-day percentage change of a stock (P) by its one-day trading volume (V1d) as a percentage of its three-month average daily trading volume (V3m). In mathematical terms, UA = abs(P) * (V1d V3m)

Then we rank every stock by its UA and present the ones with the highest UA value in our table.

Just as the most active stocks on any given day may not be particular active if turnover on that day happens to be dry, the stocks on Unusual Activity may not necessarily be experiencing some major market event. Think of it instead as an initial filter that can make it easier to look for outliers in the market.

If you have any suggestions on how to improve this table, do send them along.