Query regarding Return Calculation Methodology in Investing Algos

Stratzy Algos
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Hi Everyone @deepakjain @Nisshant_Vernekar,

Can someone please guide me on how returns are generally calculated in investing algo?

I have a few doubts regarding the performance numbers shown for these algos:

  1. Are the displayed returns calculated on the entire portfolio value, including both realized and unrealized gains/losses from currently open stock positions?
    For example, if the algorithm holds certain stocks that have appreciated or depreciated but have not yet been sold, are these mark-to-market (MTM) profits/losses included in the return calculation?

  2. Or are the returns calculated only based on closed trades where positions have been exited and profits/losses have actually been booked?
    In this case, open positions would not contribute to the displayed returns until they are sold.

Additionally, if the strategy periodically rebalances the portfolio and has multiple open holdings at any point in time, how are these ongoing positions treated while calculating CAGR, absolute returns, drawdowns, and other performance metrics?

Would appreciate if anyone can explain the standard industry practice followed while showing backtested or live algo performance.

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Even I want to know about this. @Nikhil_Bhandari

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@vishal_arora @Avinash
Hi,

Thanks for raising this question.

For our investing algos, the performance metrics are calculated based on the overall portfolio performance, which includes both:

• Realized P&L from positions that have been exited, and
• Unrealized (live MTM) P&L from positions that are currently held in the portfolio.

Since investing strategies typically maintain open holdings over extended periods and undergo periodic rebalancing, considering only booked profits/losses would not accurately represent the current performance of the strategy. Therefore, the returns displayed reflect the combined impact of closed positions as well as the prevailing value of open positions.

Accordingly, metrics such as Absolute Returns, CAGR, Portfolio Value, and Drawdowns are derived from the portfolio’s overall mark-to-market value at any given point in time, providing a more accurate representation of the strategy’s performance.

I hope this clarifies the methodology. Please let me know if you have any further questions.

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Please explain the allocation part , for example Alpha industries Automated the min capital is 35k.

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Thanks, this helps a lot :slight_smile:

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@deepakjain sir explain how allocation works . suppose if i deployed algo now, it will invest in all stocks currently holding or it will invest only on the stocks that will trigger from now on(which means capital will be idle untill new signal comes ) ?

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Hii @Avinash

Regarding Allocation:
Currently, the portfolio follows an equal-weight allocation methodology. For example, if Alpha Industries is currently holding 4 stocks and the minimum investment amount is ₹35,000, your capital will be divided equally among those 4 holdings.

Regarding Deployment of Capital:
If you deploy the algo today, your investment will be executed in the portfolio’s current holdings. For example, if you allocate ₹35,000 to Alpha Industries, the system will deploy the capital into the existing portfolio positions. Your capital will not remain idle waiting for future signals.

Additionally, we are happy to share that we will soon be conducting an Investing Webinar, where we will discuss:

  • How our investment strategies work

  • The investment thesis behind our portfolios

  • Portfolio construction methodology

  • Risk management and allocation process

  • And much more

We would be delighted to have you join the session.

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