The performance surprise index is the residual performance of a stock over the previous 3 months after taking out all the non-company specific sources of performance that would have affected it. An elevated value of this index will denote a stock whose performance (per unit of active risk) has been much better than expected, thanks to factors that are specific to the company. Conversely, low values will reflect adverse news flows that may even end up triggering a stock alert.

Last 3 Months Performance Surprise

Each stock’s 3-month return relative to its regional benchmark gets systematically decomposed into its risk factor components. These account for the effects of size, country or sub-region, industry, global macro, and alpha forecast. The residual, non-factor performance, is then represented by unit of active risk. The more extreme the ratio, the more significant the signal, and the more it stands out relative to all other stocks in the region.

This indicator is notably used in the computation of stock alerts. It is one of the key information used by the app to determine whether to suggest reviewing a holding for potential exit (“Exit?”), or to confess to be probably missing something important about the stock (for instances when the engine’s alpha forecast is very good but the performance surprise index is very bad), in which case it triggers a “Check Thesis!” alert to encourage the user to do her own digging.