It is difficult to predict the profitability that can give us an investment in shares of a company, because for this it is necessary to make enough previous estimates as the technical analysis, fundamental, economic cycle and the dependence of the company of the cycle, among others, and although, Our calculations are correct we cannot assure anything, because in the end, they are estimates. Statistically speaking, it is much more likely to hit an investment with a previous and solid study than to hit by randomness. For this reason, in this article I would like to expose some companies and explain how they have evolved, in terms of profitability levels, compared to other companies that are listed.
There are a multitude of filters to identify the companies that have done the best and worst , we have opted for a manual calculation of the Sharpe Ratio (Risk Free Rate / Typical Deviation) , although brokers such as Clicktrade have in their Platform indicators such as the ROC, which tells us the cumulative profitability over the last “n” sessions. In our example, due to market circumstances, the risk-free rate is zero. It also has other indicators such as the ATR that measures the volatility of each asset, and can help us better manage our position.
In our initial filter we have detected the companies that have done best with respect to the profitability / risk ratio, and compared it with their ROC with Clicktrade graphics.
These ratios allow us to select the best / worst companies and find investment opportunities. If we detect that a company is doing well and its fundamentals accompany it, it will probably continue to do well. In contrast, when a company starts doing it wrong and its fundamental data are not solid, we must move away or analyze the company well. If a company has been doing badly, it can involve two things, one that the financial situation is very delicate and ends in a deep bearish tendency, or that the market has misinterpreted its situation and the valuation of that company shows an opportunity. All these data and strategies, we must support them in the financial information, which by the way Clicktrade offers us in its platform.
Best companies according to Ratio Sharpe compared to Momentum
Dogi International Fabrics
Dogi is a Catalan company that is dedicated to the manufacture of textile fabrics. The good results that Dogi has had are due to the events that occurred at the end of 2016 with the acquisition of Treiss for 7 million dollars and the announcement of a new strategic plan. The market took the news as positive and Dogi’s shares were immediately revalued. In the chart below we can see the evolution of the price of Dogi during the last year. On the other hand, Dogi is a small company in relative terms if we compare it as companies like Telefónica or Santander, so the value of its shares is more volatile. Dogi’s Sharpe Ratio was 0.16.
The results of the banks in the last year have been mostly positive with an upward trend in the price. This is possibly explained by macroeconomic policies, as the ECB has announced that it will continue with the EQ. In addition forecasts of American economic growth have made analysts positively value the banking sector. Within the sector, we can highlight the case of Caixabank that have doubled the price of their shares during the last year. The Sharpe Ratio of CaixaBank was 0.15.
Worst Businesses According to Ratio Sharpe
It is the largest steel company in the world, with headquarters in Luxembourg. It is one of the largest corporations in the world; according to Forbes is the number 123 on a world scale. Its activity is based on automotive, home appliances and especially in the construction, having the capacity to produce more than 100 million liters of steel per year. It has offices all over the world, as well as iron and coal mines. Despite the size of the company, it has not performed well in the stock market during the past year mainly due to the drop in China’s demand for steel and the collapse of the iron price. The Sharpe Ratio of Arcelormittal has been -0,119.
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It is a pharmaceutical company that is listed on the continuous market and has its headquarters in Barcelona. It is dedicated to the research, production and sale of medicines. If you look at the chart, we see that the behavior in the bag that had the last year has not been so bad, were it not for the brutal fall in early July. This is explained by the fall in financial forecasts during the next fiscal year, due to problems in the US market. The Sharpe Ratio of Almirall has been -0.08
It is another pharmaceutical company that researches, produces and markets pharmaceutical products, as well as raw materials. The stock market downturn has suffered over the last few months. The Sharpe Ratio of Faes Farma has been -0.073.
The ratio Sharpe is a ratio that values companies by their level of profitability, which can be useful if we want to compare companies in the same sector, for example, to know which has done better than another. On the other hand, the ratio Sharpe is not a definitive tool because the profitability depends very much on the subjectivity of the investors; in addition it can vary in different sectors. That is why it would be more than advisable to have other data when analyzing companies.
Indicators like the Momentum, ROC, or filters like the Sharpe Ratio allow us to detect which companies have done better and which ones worse. Of those who have done better, we must analyze whether their situation will continue to be favorable, either by technical analysis or by their fundamentals to study the possibility of investing or not. Of those who have done worse, equally, we must analyze their situation to see if we can find value or otherwise the company will continue to do badly for having a delicate financial situation.
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This analysis is compatible with indicators of technical analysis, or other systems such as supports, resistances, minimum / maximum of 52 weeks, etc. At the end we try to see in a simple filter the best / worst at a certain time. A broker like Clicktrade allows us to add different indicators to the platform so we can assess the situation of companies and / or markets in order to make better investment decisions.