Peering into peer selection: Quantifying company similarity
categories: PMA, Research Paper, Americas, Asia Pacific, Australia, EMEAI, general, BONNE George, ZHANG Howard, Asset Allocation and Asset Liability Management, Factor and Risk Modeling, Investing (Investment Management), Performance Analysis, Portfolio Construction and Optimization, Risk Management, Portfolio Management Analytics, Equities, Multi-Asset Class
Peer selection plays a central role in many aspects of finance — including valuation, financial and competitive analysis, risk and portfolio modeling and ESG scoring and alpha generation. One common method of peers identification is industry classification, such as the Global Industry Classification Standard (GICS®). Here we ask if it’s possible to identify and measure relationships between companies from a systematic analysis of various types of data, including fundamentals, news and the text in company filings, and whether this data can help us better understand company relationships and the risks they may bring.