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Portfolio Tracking and Other FAQs

How is Time-Weighted Rate of Return calculated?

Profitspi uses the historical depth of your portfolio to calculate a Daily Valuation Time-Weighted Rate of Return (TW Rate of Return %).

As shown in the example below, TW Rate of Return % is calculated by applying the Profit in Period to the TW Rate of Return Beginning Value (BV) for each day.

BV can also be thought of as the liquidation value and will include cash positions if present.

Date Brought Forward Market Value Market Value Profit in Period TW Rate of Return Beginning Value TW Rate of Return Ending Value TW Rate of Return % A/c Ccy
1/12/2004 101,811.00 102,151.00 340.00 101,811.00 102,151.00 0.33 USD
1/13/2004   -355.00 -355.00 102,151.00 101,796.00 -0.35 USD
1/14/2004 885.00 885.00 101,796.00 102,681.00 0.87 USD
1/15/2004 -325.00 -325.00 102,681.00 102,356.00 -0.32 USD
1/16/2004 790.00 790.00 102,356.00 103,146.00 0.77 USD
USD Total 101,811.00 103,146.00 1,335.00     1.31 USD

When a TW Rate of Return is derived from a period longer than one day, a process called geometric linking is used to give the period return as follows:

Period Return = ((1 + Ra) * (1 + Rb)......(1 + Rn)) - 1

where a, b, n are the returns for each individual day.

Therefore, the total TW Rate of Return shown in the example above is calculated as follows:

1.31% = ((1 + .00333952) * (1 + -.00347525) * (1 + .00869386) * (1 + -.00316514) * (1 + .00771816)) - 1 = .01311253 = 1.31%

The underlying calculation will always use a large number of decimal places regardless of how many you choose for the TW Rate of Return column.

How is the timing of cashflows handled?

As explained above, for each day, the TW Rate of Return Beginning Value is the liquidation value at the start of the day and the Ending Value is the liquidation value at the end of the day.

Assuming no external cashflows, eg Cash Deposit, the Beginning Value today will be the same as the Ending Value yesterday.

When cashflows do occur, incoming cashflows such as Deposits and Dividends are assumed to happen at the start of the day so will be included in the Beginning figures on their transaction date.

Outgoing cashflows such as Withdrawals are assumed to happen after the end of the day so will be included in the Ending figures on their transaction date.

How can my Rate of Return be negative when my Profit is positive?

TW Rate of Return can be thought of as a trading performance calculation. It uses the portfolio size on each day to calculate the daily return and therefore a 1% return on a day when you have one million dollars in positions (plus cash if present) is given the same weighting as a day when you make 1% on one thousand dollars. Consider the following example:

Symbol Date Profit in Period TW Rate of Return % Total Purchase Quantity Total Purchase Value Total Sale Quantity Total Sale Value A/c Ccy
IBM 3/11/2004 10,500.00 1.15 10,000.00 911,500.00 10,000.00 922,000.00 USD
C 3/12/2004 -1,750.00 -3.43 1,000.00 51,000.00 1,000.00 49,250.00 USD
USD Total   8,750.00 -2.32 962,500.00 971,250.00 USD

The overall Return is negative even though the profit is in the black. You may find it preferable to maintain cash movements in your accounts. This way the calculation can use the total value of your portfolio including unused cash and will therefore provide for better comparisons against other investment options.

The Profitspi time-weighted rate of return calculation follows AIMR / GIPS guidelines.

 

Other FAQs:

My Preferences are not listed. Can they be added?

Can I set a default for the SEC fee?

Why cant I customize the columns of my Report or Chart?

How often is my portfolio data updated?

Is there a list of exchanges supported by this site?

What can be done about incorrect historic prices?

Why is Profit today sometimes different from the Price Change?

 


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