Calculating Returns

Stupid question,

But how do you calculate the % returns if the capital size keeps increasing?

For example,

Month 1 - 5
Capital 100k. Profits 20k

Month 5-7
Restart to 100k. Profits 30k
Month 7 onwards
Deposit of fresh 100k. Profits from 30k to 90k.

Help is greatly appreciated,

Thanks in advance.

 

Search for Time Weighted Rate of Return (TWRR) - should be what you're looking for.

Though depending on what and how you trade it may be more relevant to come up with your own return calculation based on your risk allocations and style.

 

Use VAMI as your return metric.

 

I do a kind of weighted calculation.

Like mutuual funds.


Let's say you have 10,000 dollars.

Whatr I do is with those 10,000 dollars I "issue" units of participation at a certain amount as in an IPO.

Let's say I give a nominal value for each unit of 10 USD, therefore I have 1000 units at 10 USD each valued total at 10,000 USD.


After a while, each "share" is at 13 USD therefore I have 13,000 dollars and still 1000 units.

If i want to up my capital, then I buy the shares at 13 USD. Say I want to put more 30k into the account then I buy 30,000/13 = 2307.69 shares ...

Taking th eother shares I had I have a total of 3307.69 shares ... at an average cost of 12.09 USD giving a total return of less than 10%.

I also have VAMI calculations as well on the side

 

Great, thanks for the help guys!

 

Say 100k Profits 20k = 20% increase. I now assume your AUM is 120k. and for this year you've locked in 20%.

Now you restart to 100k AUM, fine. Again month $5-7 30k = locked in 30k = 30%.

As of month #7 you have %50 profits of 100k cap AUM becos you hv 50k somewhere else and only 100k AUM needed to generate this amt.

Now month #7, you didnt take out the 30k instead i assume you have 100k + 30k + 100k = 230k. Profits = 90k. Take 90+20/230 which is 110/230k for annual Profit%.

In fact I use daily AUM as a calculation, your month to month method is not accurate.

Every day my Broker mails me a nice overall AUM value, be it with your Long/Short positions. And if you put in money your cap increases, you your daily value still goes up or down in proportion (be it cash or positions).

Say you have 20,000 today. You made 200 today.
Tomorrow you start with 20200, a 1 % increase.
Next day you pump in $2000. so you'll have $22200, today but what if you lose $400 ?

$20000 to $20200 = $200 - 1%
$22200 to $21800 = ($400) - (1.5%)

Total losses = $200, % loss = 0.5 though u had added $2000.