Back-test the market by decile. This feature splits the market into 10 equal parts and ranks it according to your metric.

In the chart below, we’ve ranked the Australian stock market by Market Cap in descending order (i.e. from the largest to the smallest companies) and Yearly Price Change in descending order (i.e. companies with the highest price growth to the lowest). And then we’ve combined those values and re-ranked the totals.

This places the largest companies with the strongest price growth over the previous year in Decile 1 and the smallest companies with the lowest price growth in Decile 10.

The results are largely as you would expect. Companies which are large and have had reasonable price growth over the preceeding year tend to outperform smaller companies which haven’t had such good price growth.

Decile 2 in particular is a consisent strong performer.

The data implies that it is better to avoid small companies with declining stock prices. And suggests investors should prioritise large companies which have had reasonable price growth over the preceeding year.

In addtion, there are many other questions our decile ranking system will help you answer.

For example, do companies with low PE ratios really outperform? What about companies with low EV/EBITDA ratios? Or how about a combination of those two metrics?

Finally, you can adjust the rebalancing frequency (i.e. quarterly, semi-annually, annual or 3-year or 5-years).

Rebalancing each decile sells all companies in that decile at that point-in-time. It then re-ranks the market according to your metric and buys them back again. This reduces the market-timing risk of your back-test and helps you to see how that metric is performing over time.

You’ll find our decile ranking option on the Universe section of the Strategy Edit page when you sign up as a Builder Plus member.

Sign-up to give it a go today!