Understanding difference in return calculation between port and sim

Research
1

Hi all,

I have a similar trading system both as portfolio and as simulation, but calculated returns of current holdings are different despite the same purchase date.

Here are the two systems:
https://www.portfolio123.com/transact_list.jsp?portid=1246990
https://www.portfolio123.com/transact_list.jsp?portid=1248670

Take PLNR as example, purchased on 11/10/14.
Portfolio buy price: $6.40 Return: 4.53%
Simulation buy price: $6.41 Return: 19.81%

Why is the simulation return not the same?

Br,
Florian

2

Florian,

for the simulation you are using the “next open” price, which is $ 6.41.
For the live portfolio, P123 uses the transaction price of the previous trading day, which is $ 6.40 on November 7th.

Here you can review the different prices.

Geov and others mentioned, that this leads to some confusion as well.

EDIT: Are you actually trading this 2.5k+ turnover 5-position port? You must have a good broker and some nerves.

Best,
fips

3

Thanks for your reply, Fips!

My concern is not regarding the price difference, but the fact that the simulation shows a return of 19.8% - which is incorrect. The sim is set to ‘next open’, so should calculate the return as 4.5%, like in the portfolio…

Any idea?

4

Florian,

You are right: not much difference in the buy price. So, assuming the computer is not making a math mistake, it must be a difference in the current price of the unsold stock.

I think the port has updated the stock price as of 11/14/2014 but the sim used 11/10/2014.

5

Thanks Jim,

I think you’re right: the difference in the update must be the reason.

Best regards,
Florian

6

Florian,

sorry, I read your post a little too quickly.

I have been working on a reply to your post and have only now seen that Jrinne has provided the right idea after I had finished my own second post.
His intuition is correct.

The sim only gets active on the last rebalance day.
The port is always up-to-date:

Simulation
Your example, PLNR:
simulation buy price = 6.41 = open price of November 10th
simulation return = 19.81
6.41*1.1981 = 7.679821 ≈ 7.68 = closing price of November 10th

To verify, here is the same for MERC (a position which was also initiated on November 10th):
simulation buy price = 13.35 = open price on November 10th
simulation return = 0.37
13.35*1.0037 = 13.399395 ≈ 13.40 = closing price on November 10th

Portfolio
PLNR
portfolio buy price = 6.4 = closing price of November 7th
portfolio return = 4.53
6.4*1.0453 = 6.68992 ≈ 6.69 = closing price of November 14th

MERC
portfolio buy price = 13.14 = closing price of November 7th
portfolio return = 2.82
13.14*1.0282 = 13.510548 ≈ 13.51 = closing price of November 14th

Best,
fips

7

Hi Fips,

Many thanks for this comprehensive explanation!

:slight_smile: