Why the Aviva share price could go higher
People instinctively distrust the momentum effect - surely successful investing can’t be so simple as just buying what's been going up? Well, the historical evidence suggests that while it doesn't always work out this way, more often than not it does.
One of the most convincing explanations for this stock market factor is the conservatism bias - the idea that people are slow to revise their expectations when presented with new information.
That means that when the market finds a stock breaking new all-time highs or beating broker estimates it tends to undervalue this development. The rational investor can take advantage of this mispricing. Stockopedia’s Momentum Rank is a convenient way of summarising the momentum attributes of a stock - let’s use Aviva (LON:AV.) as an example.
How to spot Momentum opportunities
The Momentum Rank is inspired by the latest research into momentum from leading academics (including Jegadeesh and Titman, George and Hwang, and Seung-Chan Park) and is based on a composite of the following Price and Estimate Momentum Factors.
Each company in the market is ranked from 1 to 100 for each of these momentum ratios and a composite score is calculated as a weighted average of all valid values. Applying this to Aviva yields an impressive Momentum Rank of 85 - suggesting that this stock should be looked at more closely.
A high Momentum Rank should not be ignored - over the past seven years, a quarterly re-balanced portfolio of 90-100 Momentum Rank stocks has handily outperformed the FTSE All-Share (as have the 70-80 and 80-90 deciles).
What does this mean for potential investors?
Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Aviva that you can find out about here.
About us
Stockopedia helps individual investors make confident, profitable choices in the stock market. Our StockRank and factor investing toolbox unlocks institutional-quality insights into thousands of global stocks. Voted “Best Investment Research Tools” and “Best Research Service” at the 2021 UK Investor Magazine awards.