0
$\begingroup$

I'm looking for a formula to recalculate my portfolio's weights at the end of time $T$ given a vector of the asset weights at $T$, and a vector of returns at $T$

For example:

weights = 0.2, 0.3, 0.5

returns = 0.05, -0.05, 0.10

How could I calculate what my new weighting going into $T_{t+1}$ would now be based on this information?

$\endgroup$
0
$\begingroup$

Multiply the weight of the assets times the 1 + returns of the corresponding asset. This will give you the value of each asset at the end of your horizon. In your example: (0.2)(1+0.05) = 0.21; (0.3)(1+-0.05) = 0.285; (0.5)(1+0.10) = 0.55. Now add all of these values to get Total Assets (0.2)(1.05) + (0.3)(0.95) + (0.5)(1.10) = 1.045. Finally take each of the asset values and divide it by the Total Asset Value. This will give you the weight of each asset at end of the horizon.

Weight A = 0.21/1.045 = 0.200957; Weight B = 0.285/1.045 = 0.272727; Weight C = 0.55/1.045 = 0.526316

Weight(0) * return / Sum(weight * return) = Weight(t)

$\endgroup$

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.