Questions tagged [returns]
The asset rate of returns is the profit on a particular investment; it includes any change in the asset value, interest, commission or dividends and so, all other cash-flows which an investors receive or pays due to the investment.
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How to apply derived beta to daily change?
I've taken three months of price return data for two instruments and calculated a $\beta$ between the two using the formula $\beta = \frac{Cov(x,y}{Var(y)}$ with the goal of estimating what the ...
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Trying to understand the notion of required return
I have been thinking about the notion of required return lately. I am not familiar with a formal definition, but I have tried to reason my way towards one. Please let me know if my approach makes ...
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How do I express price index mathematically? [closed]
This might seem like a straight forward qustion, but I am having problems expressing how i derive the price index for each asset i.
Consider the following:
We have defined cumulative returns for asset ...
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Is there a formal notion of a "reward measure"?
A risk measure, as defined in the Wikipedia page, is a function that maps random variables to real numbers and satisfies the normalized, translative, and monotone properties. There are many other ...
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Does the expected return increase with variance for stocks? [duplicate]
I took a historical dataset of ~2600 stocks and computed the 30-day returns for non-overlapping windows, for a 9 year period. For the returns, I computed the mean and variance. Then I plotted the mean ...
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Correlation between CDS return relevance
I see that there is much literature that uses the correlation notion in the equity returns to construct a graph or look into how they are related to one another. If we want to extend this to Credit ...
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Calculating log-returns across multiple securities and time
I've been getting very confused on the topic of calculating returns. To get cumulative returns in time, log-returns are used, but apparently log-returns aren't used across different securities at a ...
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How to calculate "portfolio cumulative return" from individual price data and weight of them?
I'm trying to run backtest in a vectorized way using Python Pandas and need to calculate a portfolio cumulative return from price data and weight of asset data.
I ...
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Intraday tick volatility between a time interval
I would like to calculate intraday tick volatility between a time interval A to B.
E.g. If I have the quote and trade ticks for an instrument between 2023-02-17 10:00:02 to 2023-02-17 14:30:00, would ...
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How to annualize Sharpe Ratio if monthly returns are serially correlated? Calculation of autocorrelations
I am looking at a data set of 60 monthly returns (last 5 years) and want to calculate an annualized Sharpe Ratio.
The usual way of doing this is to calculate the monthly Sharpe Ratio first, and then ...
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long short portfolio sharpe ratio
What is the proper way to caluclate sharpe ratio for the long short portfolio? When I calculate daily return with no cost, I use this formula: (return for long k.mean()+ (-1)*(return for short k.mean()...
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Estimating distribution of rate of return
Let $f[t]$ be the price of a stock at time $t$. We can calculate the rolling rate of return of the stock in a window of length $n$ by computing:
$$r[t] = \frac{f[t] - f[t-n]}{f[t-n]}$$
$r[t]$ is ...
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Bias-Variance tradeoff for Covariance Estimation w/ Different Frequencies
In general, what does the bias-variance tradeoff look like when estimating covariance matrices with varying return frequencies (i.e. daily, weekly, monthly returns)?
From my observations I've noticed ...
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Variance of the price from returns variance
Let's say that we have the variance of the daily return at $t_0$:
$$\sigma_{r_{t_0}}^2=\text{Var}[r_{t_0}]=\text{Var}[\frac{S_{t_0}-S_{t_0-1}}{S_{t_0-1}}]$$
for price process $S_t$. Is there a way to ...
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How to identify daily returns as an unusual daily return given a dataset
I am currently calculating daily returns of a stock with the following formula:
$$R_t = \frac{P_t - P_{t-1}}{P_{t-1}}$$
However, once I have the data, I am unable to establish a range to classify the ...
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Backshifting Price Timeseries with Memory Preservation
In Advances in Financial Machine Learning the author makes a case for fractionally differentiated price returns in chapter 5. The reason is to both maintain memory and to generate a stationary time ...
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How to calculate return on investment for an adjustment to a complex options position?
Say I currently hold a set of options positions with the same symbol/expiry that collectively have a net present value based on the estimated value at expiration of +10. I could also liquidate the ...
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How do you define returns when price may be negative (electricity price)?
I'm trying to model GARCH volatility on electricity prices. Typically the first step is to use prices to obtain log returns to make them stationary. I have encountered a small problem however: ...
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Equity and Credit Portfolio Return
This might sound like a trivial question but would appreciate the answer.
How would you calculate the return of the portfolio consisting of only equity and credit instruments? For example, consider ...
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How to derive the sharpe ratio for an intraday strategy
I have an intraday strategy, which will place 0-5 trades for each intraday trading session. (Note that some days it will not place any trades out). The average duration of a trade is around 33 minutes....
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Taking into account of transaction cost and initial margin into calculation of Returns and Sharpe Ratio
As a follow up question to this question
How to take into account of transaction cost in return and Sharpe Ratio?
I am thinking that if I need to take into account of transaction cost, and suppose I ...
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How to calculate Quartile (or Decile) returns
I have split the following portfolio of 20 stocks into 4 quartiles by say market cap. My main question is how would you ...
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Student-t measure of return volatility and time scaling
I have a series of price returns of an asset (4 days worth of data). They are relatively high-frequency.
My ultimate goal is to calculate realized volatility, but using a student's t-distribution.
I ...
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combining forecasts at different time horizons
I define a prediction of return of an asset as the following: at time $t=0$, I use my data and output that I expect the asset to make the following returns (in expected value) in the next n intervals $...
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Does anyone know of a proof of the multiplicative central limit theorem?
I have been told there is a multiplicative CLT. It says that - no matter the shape of returns distributions - if you multiply consecutive iid RVs (centered at 1.1, for instance), then a lognormal is ...
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Am I able to find individual returns from total weighted average of returns? [closed]
As titled states… I am trying to figure out how to solve for individual return given average weighted total return and weights of individual returns?
For example:
2% = (r1 x 0.2) + (r2 x 0.5) + (r3 x ...
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Mean of diffusion term not zero using NORMINV? [closed]
maybe this is a question considered too basic for all of you but im new so please excuse:
I wanted to buid a simulation in excel using the usual suspect(STANDNORMINV(RAND()) and i tried to calculate ...
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Calculating the returns of a long/short strategy
I feel like an idiot asking this but i haven't found the answer anywhere.
I have backtestest a paris trading strategy, while calculating the returns of the strategy I run into some problems when the ...
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Appropriate method for calculating negative returns on a trading strategy?
I have a cumulative profit/loss time series below for a trading strategy, what is the appropriate way to calculate the returns in percentage for such a series?
My issue is the appropriate ...
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Correct calculation of returns from a pairs trade
I am trying to understand how pairs trading works but I am confused about how to go about calculating the return on the pairs trade when I reverse my positions. I have been reading 'Pairs Trading - ...
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Daily vs Monthly vs. other return for volatility calculation?
I thought I read/heard somewhere that annualized volatility, using monthly returns vs daily returns is usually lower. With that said, I can't seem to find any papers on this.
Does anyone have any ...
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calculating probability of a return below a specific value [closed]
assume a probability distribution with a mean of %10 and standard deviation of %1.5. In wanting to solve the probability being lower than %5, the normal distribution is written down and integrated as ...
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How to calculate the portfolio risk and return if daily share prices, volume held on that day is given for all assets?
The problem is with the changing volume of assets which changes the weights. I want to use the formula for portfolio risk but cannot figure out the weights. Should taking average weight of an asset ...
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Returns and logreturns differences
I have a time series of stock prices and I tried to calculate simple returns and log returns. However, I end up that simple returns has positive mean, but log returns has negative mean. Is it possible ...
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Why the portfolio return is defined as a weighted return?
After reading the modern portfolio theory, I am wondering why the portfolio return is defined that way. Suppose there are $n$ assets in a portfolio, the simple return of an individual asset $i$ at ...
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Forward returns measurment?
Is there a common approach to measure how a forward contract is performing?
Here's what I'm thinking, each day you would price your forward with the next formula.
$$
F_t = S_0 e^{-r_f T}-Ke^{-r T} = (...
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Calculating log returns using R
I am trying to calculate the log returns of a dataset in R using the usual log differencing method. However, the calculated data is simply a vector of zeroes. I can't see what I'm doing wrong.
Here ...
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How can I measure returns such that the average is useful?
If I measure daily returns by simple percent change, a -50% day then a +50% day (or vice versa) results in a true -25% total change, but the average makes it look like you would expect a total 0% ...
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Daily to Monthly Performance Attribution - Getting Effects to equal the Excess Return
I am building a performance attribution tool on Python to help us understand the asset allocation, stock selection effects of our fund.
We are using daily price data for each component within the ...
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Why are monthly active returns averaged? Should they not be multiplied?
I'm looking at this video: https://www.youtube.com/watch?v=fZmuJ2A9TC8 @4:43 but the issue is more general.
Here the speaker is taking monthly active returns and averaging them
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Alpha calculation inconsistent across methodologies
I'm fairly new to finance, and this does not make sense to me.
Consider benchmark & active monthly returns as shown here:
If I do a line of best fit, I get an intercept of 8.4%
Which is meant as ...
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Estimation of annualized volatility depending on data frequency - exceptions to the general rule?
From my understanding, the annualized standard deviation of daily returns is generally higher than of annualized standard deviation of weekly returns is generally higher than.... monthly...quarterly......
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Why is NPV a biased measure?
I was studying return measures such as NPV and IRR from Damodaran's "Applied Corporate Finance" and one thing that he continuously mentioned was that NPV is biased towards projects with ...
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Why do we usually model returns and not prices?
I think this is a quite similar question for most of you, however it is not completely understandable for me at the moment:
Why do we usually use returns and not prices to model financial data in ...
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Returns of an interest rate swap
I would like to calculate returns for a plain-vanilla (fixed-for-floating) interest rate swap. Consider, that I am long in USD 5-year swap rate, i.e. I'm holding a receiver swap for 5-year swap rate ...
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Are the monthly risk free returns on the French data libary website annualized?
when using the monthly Fama/French 3 Factors .csv file on the French data libary web site, it is possible to see that the left column includes the monthly excess return of the market (Mkt-RF) and the ...
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I.I.D log returns. What about their square?
If one assumes the underlying return process is I.I.D, is there a solution to the question of the autocorrelation of squared returns?
Thanks.
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calculate trading returns when trade nominal goes up in 100 dollar increments
I am trying to calculate total and annualised returns on trading. The problem is that the trades placed have a minimum size of 100 dollars, so we cant assume continuous compounding (100% reinvestment)....
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Computing Delta-Hedged Option Returns
I was reading some papers on delta-hedged option returns and came across an intriguing paper that I found quite interesting.
However, I was a bit confused on the authors' methodology of computing ...
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Calculate returns using Federal Reserve's constant maturity interest rate series (for 5, 10 and 30 years)
I am looking to replicate the results from a older research paper. To do that I need first to calculate the returns from Federal Reserve's daily constant maturity interest rate series.
According to ...
