Say I have a portfolio which contains two components, A & B.
Below are the daily contributions to performance (0.02 equals 2%), where the overall portfolio return is equal to the sum of component contributions (A & B).
A B Overall portfolio
0.03 0.01 0.04
0.02 0.01 0.03
0.04 0.03 0.07
I want to show the compounded contribution for the two components & overall portfolio.
Row number A B Overall portfolio portfolio - sum(a+b)
0 1 1 1
1 1.03 1.01 1.04 0
2 1.0506 1.0201 1.0712 0.0005
3 1.092624 1.050703 1.146184 0.002857
I am confused as to why (excluding row 1) the compounded component contributions do not equal the overall portfolio compounded returns?