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Portfolio Management

The Core

Portfolio Management comes with a lot of different challenges. This article breaks down our functionalities to optimize your work and tells you how we solve these challenges.

First of all it is important to tell you that every user can follow along with this article, create a portfolio and test our manager. Palmy Investing allows everybody to create a portfolio that has a membership.

Another important note is that we do not link brokerage to our portfolios or trade opportunities, that's because our service should solely present data and analytics. Therefore each "buy", "sell" or anything that could be interpreted with a money position is symbolic.

Portfolio Creation

The first step of creating a portfolio is simple: Find a title for your new portfolio. The second step requires you to buy 5 assets. Each buy has the opportunity to set your paid price per share (Asset Price), amount of shares (Quantity) and the date of buying the asset (Evaluation Date) .

Afterwards you just became a new portfolio owner who manages the privacy settings and trades. You can e.g. decide to allow read access through the portfolio link (active by default). Therefore you'd be able to share the portfolio's insights without the edit permission of any third party.

When you're portfolio is created the following paths become available

Portfolio Manager & Trades

Our portfolio manager let you interact with an asset in 4 different ways, you can

  • Buy
  • Sell
  • Edit
  • Delete

The 'Buy' and the 'Sell' scenario can be described as a Trade, while the 'Edit' and 'Delete' scenarios only affect a buy trade that was already made.

Example
1 year ago, you decided to buy 3 shares of 'XYZ' for $211 (∑633 USD). Now you've noticed that your trade entry has a wrong price per share (e.g. $205.3). Therefore an edit of the initial trade can be made to adjust.

The possibility to edit and delete bought assets comes with a level of complexity so that we have to adjust the portfolio insights.

Loose Defaults & Customization

Besides the above, our Portfolio Manager let you control the Benchmark and Risk free rate for your Portfolio Insights. That can be overwhelming for beginners and therefore we decided to write a detailed explanation of all formulas.

Fast Import

Entering all your assets manually becomes a pain from at least the fifth. If you have a lot of assets in your portfolio (or not), the CSV import is the most convenient way to add your positions. The feature is free for all members.

One-click Export

Another concept (in Beta) allows you to export the entire portfolio into a single PDF. The PDF will be structured into 4 parts: a cover, a portfolio summary, the Portfolio Metrics and the entire trade history.

Trade History

It can become difficult to keep track of all your sold & bought assets. Therefore we serve a solution that is easy to understand, scalable and meaningful. We safe all sold assets - Forever. You can come back and analyze your past and current trades at anytime through Summaries, Tables, Scatter Charts or Calendars.

Insights

Our Portfolio Insights show you important data about the allocation, performance and risks:

  • Assets under Management
  • Positions by Weight
  • Historical Performance (Absolute & Relative)
  • All time High and Close
  • Comparison with Benchmarks (e.g. S&P 500)
  • Country Allocation
  • Sector Allocation
  • Intraday Performances
  • ... To be continued ...

Instead of describing each part, just take a look at your own portfolio by following this article, or take a look into our demo to understand their impact for analytics.

KPIs / Portfolio Metrics

Besides the fact that we scale up to thousands of trades, we are also a good place for retrieving important portfolio metrics (also KPIs). The following 4 KPIs are supported right now, some may follow in the near future:

Beta
Formula
β = ( r( Weighted Portfolio t ) - r( Risk Free ) / ( r( Benchmark t ) - r( Risk Free ) )
Where r stands for "return of", and t stands for "timeframe". With that in mind, we need the following information for the calculation:
  • weighted return of the portfolio for the given timeframe
  • return of the risk free investment (US Treasury Bill)
  • return of the benchmark for the given timeframe
Defaults

By default, we use the opening date of your portfolio to date as the horizon/timeframe.
So t = Portfolio Timeframe. To calculate the Weighted Portfolio Returns we sum up all trades performances together with their realtime weighting.

To illustrate it:
r( Weighted Portfolio t ) = Σ( Weighting position * ROI position t )
ROI position t = Return Of Investment from t → calculation time
Upper "position" stands for a portfolio position that meets these criterias:
  • position is a stock
  • it is planned to include ETF positions as well in the future
  • we now also include ETF positions
  • position is sold or still held

Besides the "r( Weighted Portfolio t )" our formula uses "r( Risk Free )" and "r( Benchmark t )". Latter, the benchmark or also known as market return also uses the timeframe to dynamically calculate the performance for the timeframe. Our standard benchmark is the S&P 500.

For the "r( Risk Free )" we use the Return of the 10 Years US Treasury Bill as default. This is a subjective choice and can be changed by you:
Configuration of Risk Free & Benchmark
To directly influence future calculations, we leave it up to you to choose your own risk free rate or benchmark. Our databases currently provide 120+ available benchmarks and 15 different treasury bills. You can adjust this in the Manager at any time, provided you have the rights.
Jensen's Alpha
Formula
α = ( r( Weighted Portfolio t ) + β ) * ( r( Benchmark t ) - r( Risk Free ) )
As you can see, we use our previous Beta β here to calculate Jensen's Alpha α. We use r( Weighted Portfolio t ), r( Risk Free ) and r( Benchmark t ) in the same way as described in Beta.

Feel free to adjust the benchmark index and the risk-free rate as needed in this context.

Please keep in mind that we use the CAPM (Capital Asset Pricing Model) to calculate the alpha. This has both advantages and disadvantages like almost every model.
Volatility & Sharpe Ratio
Volatility Formula
First of we calculate the Excess Return of all portfolio positions (p):
 r( Excess p ) = ROI p - r( Risk Free ) So that we are able to add them together: r( Excess Portfolio ) = Sum( Excess p, Excess p1, Excess p ... ) To finally retrieve the volatility, we compute: Volatility = Standard Deviation( r( Excess Portfolio ) )
You can also influence the calculation here. If you change the "Risk Free Rate", the "Portfolio Excess Return" and thus the volatility changes. As you can see, the calculation methods aren't static. They are designed to be customized.
Sharpe Ratio Formula
The calculation of the Sharpe ratio follows intuitively from the volatility:
Sharpe Ratio = μ( r( Sum( ROI p0 - r( Risk Free ), ROI p... - r( Risk Free ) ) ) / Volatility Sharpe Ratio = μ( r( Sum( Excess p, Excess p1, Excess p ... ) ) / Volatility
Sharpe Ratio = μ( r( Excess Portfolio ) ) / Volatility
Further Configuration

These were the current explanations of the four metrics. But that's not all. You can also manipulate the calculated data. If you want to adjust any of these further or need to change the data format, click on the icon next to the date of the calculation:

Sample Data To Show The Icon
You can always open the modal to quickly adapt your KPIs.
Sample Settings To Show The Modal
Your opportunity to adjust and change the data format.
As you can see, you can decide for each metric whether it should be given as a percentage or as a decimal number (default). You can also adjust the Sharpe ratio and volatility yourself. You can choose between the following:
  • Unadjusted (Default)
  • Monthly
    • Metric = Metric * Sqrt( 21 )
    • Adjusting by 21 trading days per month on average
  • Quarterly
    • Metric = Metric * Sqrt( 63 )
    • Adjusting by 63 trading days per quarter on average
  • Annualized
    • Metric = Metric * Sqrt( 252 )
    • Adjusting by 252 trading days per year on average

Presence & Outlook

While some features might need improvement in the current version (feel free to submit feedback as always), some features are already on their way to be announced, e.g. having more portfolio metrics, dividend tracking and ai copilots.

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