Messages

Investment 'Alpha' Points To Ravens Victory

What happens when you apply reversion to the mean, return on investment and a scattering of other investment metrics to the Super Bowl? A possible Baltimore Ravens victory, according to one L.A. investment firm.

The firm, which has been applying an investment-based formula to Super Bowl Sunday for the past five years, says this year’s analysis shines a favorable light on the Ravens, who go into the game as underdogs to the San Francisco 49ers.

“Do the 49ers have a weapon strong enough to stand up against the swan song of Ray Lewis and the Ravens? We think not,” Matthew Robinson, a CFA at Analytic Investors, writes in a report released today. “As 4-point underdogs and the lower alpha team, we’re tipping the Ravens to cover the spread, if not win this one outright.”

Robinson’s forecast rests on an analysis of all the NFL’s teams as though they were individual investments. Each team is assigned an alpha number, which represents the potential return on investment if wagers had been placed on the team to win against the spread in each of its regular season games.

Under that analysis, the Indianapolis Colts yielded the best returns, with an alpha of 59.2%, while the Jacksonville Jaguars were the worst “investment,” with an alpha of -68.5%.

The 49ers finished the season with an alpha of 23.1%, while the Ravens were at 2.3%. So how does that translate into a bet on the Ravens?

The Super Bowl prediction, according to Robinson, is based on one other investment metric: volatility.

History has shown that NFL teams not only display wild extremes in alpha season to season, but also from the regular season into the playoffs. In this year’s playoffs, lower alpha teams have an 8-2 record.

Hence, the recommended bet is on the Ravens—the lower alpha team.

“Theoretically, the Super Bowl should be no different than any other post-season game in that the underachiever, or lower-alpha team, will be relatively undervalued,” Robinson says.