Hudson Labs is well known for our proprietary forensic risk scores. These scores are unique because they rely entirely on non-numeric data in assessing the likelihood of fraud or malfeasance, providing a unique and significantly higher quality predictor of downside risk. Investors, insurers and accounting firms use our scores to find and avoid potential bad actors.
Hudson Labs forensic risk score details:
Hudson Labs risk scores are machine learned, not additive. The scores are calculated using Hudson Labs’ AI-extracted red flags and reflect the interaction of these red flags/risks. Risk scores range from 1 to 100 (low risk to high risk).
Scores above 70 are considered high risk. Fewer than 10% of mid/large-cap issuers receive a Hudson Labs forensic risk score above 70. Companies with a high score have about a 1 in 3 chance of receiving an SEC enforcement action in the next three years. Scores from 60 to 70 are considered medium-high.
Risk scores are optimized for precision over recall. This means that high risk companies are very likely to experience future issues but low risk companies may not all be in fact low risk.
Initial high risk scores tend to precede price collapse by at least 6 months. Risk scores are trained using 10+ years of SEC enforcement actions, regulatory investigations related to fraud, settled class action lawsuits and other target labels related to the earnings management and malfeasance.
Coverage universe: All U.S. issuers filing a 10-K or 10-Q excluding financial services firms
Coverage initiation date: Jan 1, 2019
Screen for companies with a high HL forensic risk score
Find the forensic risk score screen on the "Ideas" page of the Hudson Labs platform.
Screen inclusion criteria: A score of 60 or higher assigned on or after Jan 1, 2023
Data dictionary:
Company page - Forensic risk score view
Find company-specific risk score details on the "Red flags" section of the relevant company page of the Hudson Labs platform.
Access Hudson Labs’ proprietary forensic risk scores and more on the Hudson Labs platform. Book a demo today.
Related content:
- Hudson Labs' high vs. low risk companies see 20+ point differential in returns
- Predicting Pelonton’s stock collapse
- Predicting disaster at Credit Suisse
- Predicting bankruptcy at Core Scientific
- Backtesting - forensic risk scores (version 1 backtest, now version 3) vs. stock price
- Predicting fraud-related class action lawsuits - Backtest
