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I am using a quant simulation platform and I have chosen a formulaic alpha to be used. Now the platform is backtesting and displaying the total return of the alpha strategy over 12 years. The trading window chosen can be 1 hour or 1 day.

The initial value of my portfolio was some 2.7 units and value at the end of 12 years was some 4 units. Now how is this total return over 12 years generally calculated ? It's not explicitly written on the platform but how is it generally done ? I guess my alpha strategy is being used to get weights for individual stocks to construct an initial portfolio. What happens after this ? Is the value of the same portfolio checked after 12 hours and the return is calculated or is something else being done to calculate the total return ?

P.S: The platform is very new and does not have this information explicitly written, so how is this generally done everywhere ?

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  • $\begingroup$ 1 day = 24 hours. If the portfolios (which are changing over time) are being valued every day, as is standard, they are being valued every 24 hours. From 2.7 to 4 in 12 years means your capital grew at -1+(4/2.7)^(1/12) = 3.3295% a year. Total return generally means 'capital gains plus dividends'.If you mention the software you are using, someone may be able to provide more info. $\endgroup$
    – noob2
    Dec 26 '20 at 9:57
  • $\begingroup$ @noob2 The platform that I am using is really new and it's probably part of a small trial run at this stage so I'm not sure if that would help here. $\endgroup$
    – user123456
    Dec 26 '20 at 14:21
  • $\begingroup$ @noob2 If the portfolios are changing over time, how is the next changed portfolio being found ? Say my formulaic alpha is a simple moving average of some previous windows. So using this alpha, weights can be assigned initially (at the start of the first trading day) to each stock and say an initial portfolio is constructed with this. Now how is the next version of the portfolio found ? P.S: Since the platform is new and does not have this information explicitly written, how is this generally done everywhere ? $\endgroup$
    – user123456
    Dec 26 '20 at 14:28
  • $\begingroup$ Sorry, but if I am using software that is completely new, not documented, etc. (even if I wrote it!) I would have zero confidence in the results. $\endgroup$
    – noob2
    Dec 27 '20 at 8:47
  • $\begingroup$ @noob2 Yeah I mean even if we leave this particular software out (It might be giving different results), how is backtesting generally done ? If the portfolios are changing over time, how is the next changed portfolio calculated ? If you could look at my previous comment as well, had written a bit more about the backtesting part there. $\endgroup$
    – user123456
    Dec 27 '20 at 16:31

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