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Data Spotlight: 3 strategies with Revelio Labs' workforce data

20 January 2022
Data Spotlight

Discover three new trading strategies from Revelio Labs' data: employee turnover, diversity, and workforce skills as predictors of future stock performance.

A free trial of Revelio Labs data is now available via SigTech’s Data Showroom. Access preloaded, mapped and backtest ready data alongside signal code examples below and backtesting building blocks.

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Historical trial data for over 4000 global publicly traded companies is available from 2008 onwards. The data is updated monthly, on the 15th.

We developed three example strategies that filter for companies outperforming their peers in workforce management, using the SigTech platform and Revelio Labs’ data.

1. Turnover predicts performance

Higher employee retention is indicative of greater company culture, which in turn leads to improved performance. Testing this hypothesis across companies in the SPX Index, we measured scaled inflows over outflows annually for the last 10 years. A strategy that rebalances annually using this signal yields a positive return. Decomposing the performance of five equally weighted ranked quintiles, the strategy yields a return of 13-14% annually, with a Sharpe ratio of 0.7-0.8.

2. Balanced diversity leads to long-term outperformance

Constructing simple strategies that rebalance annually based on gender parity by number of employees, seniority, and salary for companies in the SPX index, we find that a balanced approach outperforms long term. Both charts below show the three middle quintiles for the female/male seniority ratio and female/male ratio of employees signals yielding better returns, and generating returns between 12-15% with Sharpe ratios of 0.7-0.9.

Studying demographics parity by number of employees, seniority, and salary led to surprising quintiles outperforming, which suggests that all measures of diversity are not yet embedded into the market as long term drivers of fundamentals. However, we did find that the quintile of companies with the highest ratio of minority to non-minority employees outperformed relative to their peers. This quintile, shown in blue below, rebalances annually and generates a return of 17.53% and a Sharpe ratio of 0.9.

3. Certain sectors have skills dependencies

We utilized research by Guggenheim and Barclays on Revelio Labs data, which showed workforce skills as key performance indicators for certain sectors, to generate backtests in the SigTech platform. Guggenheim demonstrated linkage between sales employee inflows and SaaS revenue, and Barclays demonstrated marketing employee outflows negatively impact consumer company revenues.

Passing both signals through the SigTech framework on a quarterly rebalance schedule over 10 years yielded positive performance. Heatmaps for the top quintile of both strategies are shown below. It’s worth noting that our backtest for the latter signal, tested across equities in the broader consumer sector, not just consumer packaged goods.

Monthly returns heatmap for sales employee inflows drive SaaS revenues signal
Monthly returns heatmap for marketing employee outflows negatively impact consumer company revenues signal

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