I was trying to learn how to work out the performance of a portfolio where you are long one stock and short another.
I found an example below. The NAV is calculated by adding the value of the long stock (100) plus the cash line (58.16) and minus the short stock (58.16). Guessing this cash line is the amount raised by shorting stock XYZ?
Long Short Stock Stock Cash NAV Return % ABC XYZ Price Value Price Value 1st Jan 12.11 100 17.83 58.16 58.16 100 2nd Jan 11.84 97.79 17.5 57.08 58.16 98.87 -1.1317 3rd Jan 11.62 95.96 17.03 55.55 58.16 98.57 -0.3046
My question is though, is how to replicate those returns but when given weights & shares instead. For example,
Lets say you are long 8.25754 shares in ABC & short 3.26173 shares in XYZ.
The returns below are based on the prices above.
ABC XYZ Return % Return % 1st Jan 2nd Jan -2.21 -1.85 3rd Jan -1.88 -2.69
So I am able to calculate the return for the 2nd of Jan by doing the following,
Assume starting NAV of 100, weight of ABC is 100% weight of XYZ is 58.16% So total return is (-2.21 * 1) - (-1.88 * 0.5816) = -1.13%
But whatever I do I can't get a return for the 3rd Jan of -0.3046%. How do I calculate this value?