High Minus Low (HML)

The High Minus Low (HML) ratio is a stock market indicator that measures the difference in returns between high-priced stocks and low-priced stocks. It is calculated by subtracting the return on the Russell 1000 Growth Index from the return on the Russell 1000 Value Index.

The HML ratio is used to measure the risk premium of value stocks. Value stocks are stocks that are trading at a low price relative to their earnings, book value, or other fundamental measures of value. Growth stocks are stocks that are trading at a high price relative to their earnings, book value, or other fundamental measures of value.

The HML ratio is often used as a contrarian indicator. When the HML ratio is high, it indicates that value stocks are outperforming growth stocks. This can be a signal that the market is overvalued and that growth stocks are due for a correction. Conversely, when the HML ratio is low, it indicates that growth stocks are outperforming value stocks. This can be a signal that the market is undervalued and that value stocks are due for a rally.

The HML ratio is a useful tool for investors who are looking for opportunities to buy undervalued stocks. However, it is important to remember that the HML ratio is only one indicator of value. Investors should also consider other factors, such as the company's financial health and growth prospects, before making an investment decision.

Here are some additional details about the HML ratio:

• The HML ratio is a long-term indicator. It is not designed to be used for short-term trading.
• The HML ratio can be used to compare different market sectors. For example, the HML ratio for the technology sector may be different from the HML ratio for the healthcare sector.
• The HML ratio can be used to compare different countries. For example, the HML ratio for the United States may be different from the HML ratio for Japan.

The HML ratio is a valuable tool for investors who are looking for opportunities to buy undervalued stocks. However, it is important to remember that the HML ratio is only one indicator of value. Investors should also consider other factors, such as the company's financial health and growth prospects, before making an investment decision.