contribution analysis
Contribution analysis forms the foundation of attribution, and allows us to evaluate how shares in a portfolio ‘contributed’ to the overall profit or loss in any reporting period.
The contribution calculations are the simplest (and most intuitive) of the performance calculations, and they form the foundation for the more complex attribution calculations.
Contribution does not attempt to compare the performance of the portfolio to any benchmark, nor does it involve any statistical analysis of the performance.
(That is the role of attribution)
To calculate contribution, Risk101 grabs a snapshot of the portfolio at the beginning of the month, and then finds all trades done for the portfolio for the entire month.
It then sorts the trades by dealing date, and allocates each trade to the correct day on which it was dealt.
Using the snapshot of the portfolio at the beginning of the month, and the trades for day-1, it is then able to recreate the portfolio holdings as at the end of trade on day-1. These holdings are then rolled forward to day-2, the trades for day-2 are applied, and so on for each day of the month.
Once Risk101 has recreated a snapshot of the portfolio for each day of the month, we are then able to recalculate the returns, but on a DAILY WEIGHTED AVERAGE basis.
Numerous reports detail every aspect of the portfolio’s performance.