Ranking-Based Allocation – How It Works in Fincanva

What It Is

Ranking-Based allocation is a dynamic method that ranks assets (or models) using a specific metric—such as recent performance, volatility, or Sharpe ratio—and allocates capital accordingly. Higher-ranked entries receive a larger share of capital, allowing you to emphasize your top ideas.

What It Does in Fincanva

• Logic: Capital is distributed based on rank position. The higher the rank, the larger the allocation

• Customization:

  • In portfolios: models are ranked, and users can assign weight to each rank or exclude certain models

  • In models: assets are ranked and weighted by decile or percentile, enabling fine-tuned allocation

• Flexible Inputs: Ranking can be based on change, average change, annualized standard deviation, sharpe ratio and P/E

Pros

• Dynamically rewards strong performers or favorable assets

• Easily adaptable to different investment styles or factors

• Allows for concentration in top picks while still maintaining diversification

• Encourages strategy-specific targeting and fine control over capital distribution

Cons

• Rankings may fluctuate frequently, leading to higher turnover

• Dependent on quality and stability of ranking metric

• May overweight recent winners, increasing risk of mean reversion

• Requires careful metric selection to avoid overfitting

Where You Can Use It

• Portfolios: Yes - Positive weights only

• Models: Yes

When to Use It

• Ideal when using momentum, quality, or factor-based strategies

• Useful for tactical models that need to emphasize top-ranked assets

• Recommended for screening-driven investing with a clear ranking logic

• Great for investors who want partial automation without full optimization

Example
In a model with 10 assets ranked by 6-month returns:

The top-ranked asset may receive 30%
The second-ranked 20%
Others receive proportionally less, or nothing at all if cutoffs are defined

In a portfolio, you might rank models by historical Sharpe ratio and allocate 50%, 30%, and 20% across the top three.

• Portfolios: Available on Advanced, Ultimate, and Professional plans

• Models: Available on Advanced, Ultimate, and Professional plans