When asked by a passerby where he was when he last had the keys, he said it was near his house. When then asked why he was searching so far away from his house, he said because this is where the light is. There is a perennial search for a screen that is a good proxy for investment value. Such a screen is a grail for some so-called value investors. Various screens have been proposed over the years.
Some questions come to mind concerning such a grail screen.
If a particular screen results in selecting the same stocks as estimates of investment value, then the correlation between the screen and the investment value estimate is perfect and the coefficient of correlation between them is one hundred percent. Third, correlation is calculated between a sample of a sufficient number of pairs of points. Each pair consists of a point for the screen value for a particular stock and a point for investment value of that same stock. As a practical matter, the concept of investment value is operationalized as a range of values and not as a single point estimate, and sometimes to select or deselect a stock, this investment value range is unbounded on either the upper tail or the lower tail, respectively. Fourth, before calculating correlation coefficients, someone with an appropriate circle of competence would need to estimate investment value of the company and its common stock.