Analytic Investors, a quantitative equity shop, is putting its eight-year streak in picking Super Bowl overachievers on the line with its prediction Tuesday that the New England Patriots will beat the New York Giants on Feb. 5.
Analytic's quantitative “NFL Alpha” analysis of each NFL team's performance during the regular season calculates the return on investment that could have been earned “by placing a systematic wager on the team to win each game outright throughout the entirety of the season,” according to the firm's NFL Alphas 2011-2012 report, released Tuesday.
Using bookmakers' odds, Analytic defines the payoff from such bets as (1/p -1,) where “p” is the probability of victory — calculated by Analytic as a function of the point spread. Consequently, if a team judged to have only a 25% chance of winning beats those odds and defeats its opponent, the payoff on a standard bet of $1 would be $3.
As a result, a team such as the Kansas City Chiefs, whose seven wins for the season were all upsets, sported an alpha of 36.3% in Analytic's latest report, higher than many teams that enjoyed superior won-loss records.
For the latest year, Analytic pegs the New York Giants' alpha at 32.3%, roughly twice the New England Patriots' alpha of 16.1%.
Based on a mean-reversion analysis, the money management firm concludes that higher-alpha teams are overvalued going into the postseason, making the best strategy one of betting on the lower-alpha team.
Analytic's methods have succeeded in identifying the team that has beaten the Super Bowl bookmakers' spread for each of the past eight years, although in only five of those contests has that team actually won the game.
Still, with the Patriots tipped by bookmakers to beat the Giants by three points, Analytic's prediction that New England will do better than that spread suggests that the Patriots will “win this one by more than a field goal,” according to the firm's report.