New Rover Feature - Ratio Charts

Printer Friendly Printer Friendly December 11, 2018

Ratio Charts

We are excited to announce Ratio Charts, a brand new feature added to the Stock Rover charting facility. Ratio Charts allow you to see time series data relationships in a whole new way.

This is the sixth in a series of blog posts describing new features we have added to Stock Rover V7. You can reference our blog to catch up on the previous five posts in this series.

What is a Ratio Chart?

A Ratio Chart is a very lucid way to see how two different sets of time series data are trending against each other over time. For example, shown below is a Ratio Chart of Google’s (GOOGL) price performance price relative to Facebook (FB) over the last two years. In this chart it is easy to see that Google has been in a sustained uptrend relative to Facebook for the last 15 months or so. Prior to that Facebook had the upper hand.

First Things First – How do you get Ratio Charts?

Displaying Ratio Charts in Stock Rover is easy. Within the charting facility, you simply click on the Technicals button and then click on Ratio Chart menu item as circled in the screenshot below. That brings up the Ratio Chart window.

The screenshot below shows the Ratio Chart window that appears when you select Ratio Charts. Here you can select the tickers to use and the metrics for each ticker. The Metric input box functions as a search box, so it will match the metrics that have the text you type in the metric name or description. You can also click the Browse button to the right to bring up the metric browser to make it easy to show all of the metrics available and to select the one you want.

You can also add Technicals to the Ratio Chart via the Add Technicals button, highlighted in the screenshot below. When you have the Ratio Chart set the way you want, click on the OK button to render it.

If you want to change the chart settings on an existing Ratio Chart, you can click on the Ratio button again. You can also click on the hamburger in the upper right hand corner of the Ratio Chart itself, as shown below. To remove the Ratio Chart, click on the X next to the hamburger as circled below.

Ratio Charts Examples

An example of where Ratio Charts can be helpful is for investors who like to do hedged pair trades, which means going long on one stock, short on another and overall neutral to the market. The Ratio Chart will show the trend and current trajectory of the pair trade. Assuming the trend continues, you have a winner. Trends generally continue because of the momentum effect. But as the saying goes, they end when they end, and unfortunately there is no reliable prediction for that.

So for example, if a pairs trade is contemplated involving GM and Ford, the Ratio Chart below would show that it makes sense to long GM and short Ford.

Of course most investors would want to answer a more basic question, If I want an auto manufacturer in my portfolio, should I buy GM or Ford? As GM is doing very well relative to Ford, the Ratio Chart answer would be GM unless you are expecting something to alter that dynamic in the near future.

So Ratio Charts can be very helpful when an investor is trying to decide between which of two securities to buy. The Ratio Chart can indicate what the relative past performance has been and which security has momentum vs. the other.

Ratio Charts Technicals

One of the nice things about Ratio Charts in Stock Rover is you can chart calculated technicals on the ratio line. There are three sets of technical available and they are as follows;

  • Simple Moving Averages
  • Exponential Moving Averages
  • Bollinger Bands

Technicals can be useful to help find key inflection points in the Ratio Chart and to see where the Ratio Chart is within the relative range that the ratio operates in. Let’s look at the GM/Ford Ratio Chart with the 50/150 day Simple Moving Averages added in.

Here we can see that the sustained uptrend GM has vs. Ford is continuing as both SMA lines are ascending and the 50 day is above the 150 day, which is bullish for GM relative to Ford.

Here is an example of the same GM / Ford chart with Bollinger Bands.

Ratio Charts with Fundamental Metrics

You can also do Ratio Charts using fundamental metrics in the numerator and/or the denominator. You can use any of the fundamental metrics that are available in the Stock Rover charting package. And there are well over a hundred of them in total.

For example, below is a screenshot of AutoZone’s (AZO) price relative to its stockholder equity. Here you can see that the ratio is going steadily down, indicating there is more equity in the company for the price you pay than there used to be, which should be considered a good thing.

You can even do ratios on fundamental metrics with different tickers like Facebook’s sales to Google’s sales. The screenshot below shows this ratio for the last five years. The chart clearly shows that Facebook was growing sales faster earlier in the five year period, but now the sales growth rates are comparable. And if the trend continues, Google will be growing revenues faster than Facebook in the future.

Final Odds and Ends

A few final notes on Ratio Charts. If the chart and the table are linked in Stock Rover, which they are by default, there is a nice automatic behavior that Ratio Charts have. If one of the linked symbols is selected in the navigation list, when you change the selected symbol in the table, the symbol will also change in the Ratio Chart to the newly selected symbol. This makes it easy to quickly looks a bunch of different ratios without having to set the chart up again.

Ratio Chart are available to all user through the end of the year. Sometime early next year they will become available to Premium Plus users only.

We are excited to bring this powerful new feature to Stock Rover. We encourage you to take Ratio Charts out for a spin and let us know what you think.




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