MirrorWeight Stock Allocation Method
creating mirror-weighted portfolios from companies' fundamental financial data
MirrorWeight has introduced a new portfolio analytic widget to determine portfolio weights of stocks based solely on their valuation ratios. The widget requires the user to enter only the stock symbols and the portfolio's total market value. In addition, the user specifies whether to emphasize earnings or book value in establishing the portfolio weights. The reason why there are so few required inputs is that the widget is supported by OV Metrics' extensive database, valuation metrics, and the OV Tool.
The example below, emphasizing earnings, assumes a $100,000 portfolio with just three holdings: A, B, and C and valued at P/Es of 5, 10, and 20x's, respectively. Inverting the P/E Ratios creates earnings yields of 20% for A, 10% for B, and 5% for C. The earnings yield of Company A is 20% and represents 20/35ths, or 57.1% of the total earnings yield. The MirrorWeight Widget calculates and displays portfolio weights that exactly mirror those calculated percentages.
E/P as % of E/P Total
Stock P/E E/P MirrorWeight
A 5.0 .20 57.1%
B 10.0 .10 28.6
C 20.0 .05 14.3
.35 100.0%
The MirrorWeight Premium Widget (by subscription only) allows the user to include up to 100 stocks in each portfolio. Also, there are two free MirrorWeight Widgets available here. The programming code is also listed with the widgets in case you wish to embed the widgets elsewhere.
All MirrorWeight widgets offer options specifying Earnings/Price, Book/Price, and/or a combination of both. In this latter option, the user can specify the % split between E/P adn B/P ratios as weighting factors. For an actual market example of the MirrorWeight method using Exxon Mobil (XOM), Microsoft (MSFT), and Google (GOOG), see the MW Module discussion.
