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I have a daily rebalanced portfolio of several strategies. After one month, I now want to attribute the performance to the different strategies. There are several ways to do it.

For instance one could compute what each strategy has actually contributed. But it is not always fair as it is dependent on the path of other strategies.

Or one could compute the theoretical performance of each strategy as if it was standalone and then rebase it so that the sum of the contribution is equal to the actual realised performance.

Any other idea, or any preference between the two?

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2 Answers 2

If you are using the Bisons model the frequency of compounding should be as much as the the rebalance frequency of the portfolio. In your case to get meaningful results you will need to use daily compounding. One this to be careful is that you must take transaction effect into account when calculating the return. If you are using a software like FactSet it has the option to set frequency as well as to take transaction effect into account. If you want to do the calculations your self see these 2 references.

http://corporate.morningstar.com/us/documents/MethodologyDocuments/MethodologyPapers/EquityPerformanceAttributionMeth.pdf

http://www.mscibarra.com/research/articles/2010/Beyond%20Brinson%20Establishing%20the%20Link%20Between%20Sector%20and%20Factor%20Models%20(Apr%202010).pdf


In case the portfolio is not balanced frequently (not in your case) you can do a one period attribution in excel it self without compounding. Assumptions: transaction costs are negligible within the period, there is no rebalancing or rebalance is negligible within the period thus the average weights represent the holdings approximately.

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Perform a returns analysis by regressing the returns of your composite strategy on the returns of the component strategies. Constrain the beta coefficients to sum to 100% and bound them from 0 to 1. You will then have the % explained by each component.

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interesting idea –  RockScience Feb 10 '12 at 10:37

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