# 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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### compounding in short positions

Why does compounding doesn't work in short positions? Let's say I have following mini time series 5 6 4 2.5 Returns are -20%, 33% and 37.5%. So compounding return equals to 46.67% = 0.8 * 1.33 * 1.375....
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### Volatility of S&P 500 based portfolios too low

I am trying to calculate the volatility of five portfolios consisting of S&P 500 stocks. The portfolios consist roughly each of 20% of the S&P 500 members between 2015-2022, rebalanced monthly ...
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### APT assumptions

Suppose an investor identifies an asset with return $R_i$ whose excess return, when regressed on the market portfolio with return $R_M$ and a (zero-cost) long-short portfolio with return $R_{LS}$ ...
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### How to Compute Returns from Cumulative PnL and Price Data for Portfolio Optimization in Algorithmic Trading?

I have a set of algorithmic strategies. Each strategy focus on a specific financial product and generates entry and exit Long or Short signals. So for each strategy we can have periods in which we are ...
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### Calculating returns on sequence of trades with zero starting capital

Background I am trying to calculate the returns on a sequence of trades performed by an entity, where I do not know the starting capital. Therefore I assume a starting capital of zero. From these ...
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### Visualizing Drawdown

I want to replicate the image below: Does anyone have an idea how to do this in Python. To be specific; I am only having problems plotting the blue shade and the blue lines.
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### Optimized Method to Calc Real Rates of Return From Monthly Nominal Rates

I wrote the following VBA code to calculate real rates of return using Robert Shiller's dataset: Note: This calculation is for forecasted returns so I have no prices available to do the calculation by ...
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### Constant maturity bond fund returns in downward sloping curve

Assume the following: we are running a constant maturity bond fund (10yrs) all zero coupon bonds to maintain the maturity, we buy bonds of 10y and sell the 9y bonds 1y later price of 10y bond is 100, ...
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### How to calculate historical returns and variance for a non-BAH trading strategy?

Suppose i have a strategy that is not buy-and-hold type of strategy. It can have unique entry timing and unique exit timing for a single asset and both long and short positions will be allowed, and ...
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### How to properly calculate leveraged returns

Imagine we have a certain price movement, where the price starts at 1000 and ends at 1200, with some fluctuations in the middle. For the sake of the example, imagine it's hourly timestamps, and it's a ...
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### Bound on path length of a stock price

Consider a time series $(S_i)$ representing a stock price (say close prices of one minute candles). Let $\Delta$ be a quantization step (could be the price step in the strike prices of the ...
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### Determing "fair" implied volatilities for SPX options

I'm trying to come up with a method to calculate fair IVs for SPX options based on historical data. I can't find much information on this so here's how I've thought to do it: Determine a metric for ...
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### What is the proper way to calculate cumulative return when only a portion of the portfolio is invested?

I have a hypothetical investment strategy that returns $x$ amount after $n$ days for a $1/n$ portion of the portfolio. I want total cumulative portfolio return. Is this right? Basically, I calculate ...
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### How to compute % return of a strategy with Vega notional [duplicate]

I'm currently running some backtest on a strategy 2 legs and where the product traded is straddle. I aim on this strategy to be Vega neutral thanks to a balance between 2 legs. Thus, I deal with Vega ...
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### Return forecasting for portfolio optimization

I have some questions related to forecasting returns and how it's used to generate the inputs for portfolio optimization. First, I want to understand why factor models such as FF- 3-factor model are ...
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### Scaling variables (Fraction vs % vs log) when regressing twelve month returns

Dear Stack community, My question is the following; If my dependent variable is twelve month returns. And as independent variables I have fiscal year variables like ROA and log variables like the log ...
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### Compounding vs Annualizing Returns in a Portfolio Optimization Context

This might be a rather basic question that might be closed... but I can't for the life of me understand why in many Google search results the annualization of daily returns is done like this: r_yearly ...
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### How to calculate weighted return of two stock prices? [closed]

I have 2 list of returns A = [0.00538467, 0.04701923, 0.00170811,...] B = [0.00299271, -0.0060228 , -0.07761099,...] I take long position in A and short in B. How to calculate the total return and ...
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### Tricky question about returns [duplicate]

I have a list of monthly returns. -10% -20% -70% -30% -15% -60% The total end return is -94.859%. Because you calculate = 100 x (1+ -10%) x (1+ -20%) x ... Now I ...
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### Calculating Portfolios Covariance via Bilinearity with Log or Simple Returns

I'm wanting to calculate the covariance between two portfolios $A$ and $B$ which are allocated to assets $X_i$ (where $i \in \left[1, 2, \cdots, N \right]$) with weights $\vec{w_A}$ and $\vec{w_B}$, ...
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### Total Return on Bond [closed]

I'm trying to calculate the total return (in %) on a 9% coupon 20-year bond with the following assumptions: reinvestment rate of 6% annually (3% every six months) terminal yield of 12% (semiannual ...
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### Figuring out how TradingView calculates the Sharpe ratio [closed]

This is the simplest backtest I've come up with, yet I can't figure out how TradingView has calculated the Sharpe ratio to be 0.577. I've set the risk_free_rate=0. Is it possible to extract the ...
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### Why can I use equilibrium asset pricing models to predict future returns?

This is a general question that applies to the CAPM and any version of the APT (e.g. the Fama & French three factor model). Speaking in terms of the APT: Assuming a simple one-index version of the ...
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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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### 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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### 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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### 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 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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### 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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