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You are in a way right and in a way wrong about the included cash. I do not
in this simulation limit myself to a certain available cash amount above
which I can not trade (although I have that kind of functionality in the
simulator). And I do not use the starting capital as part of the calculation
so what I get is not a true Sharpe ratio. Anyhow, I believe that my
calculations should give a risk to reward amount that goes up or down in the
same way as a Sharpe ratio, since the amount of money in the start account
is only a constant with which to offset the calculations. I could easily add
using a start capital into the calculations and from your answer I realise I
should. Anyhow that is easy, my main problem is how to react for the days
where number of stocks with close information is changing.
I am in a way including cash in the equation, assuming that I can always buy
any amount of stocks I want to. I use equity as being the difference between
money bought for and current possible value. For each stock I then simulate
a buy of a stock position on 3500$. This I do to circumvent the problem of
old stock results getting no impact due to their much lower price due to
depreciation and simular (this is a topic in itself, but I am satisfied with
my solution). What I then do is that I calculate the equity for each stock
for each day as being the amount of money I would have received net if
selling at that days close value after subtracting my own costs (buy plus
spread plus comission).
For one single stock this works and I keep track on equity changes
independent of if I am in the market or out of the market. For the
portfolio, the problem is that the amount of stocks having a close value for
that day differs on some days, days with low trading, and thus the equity
goes up or down depending on number of stocks represented on a certain day.
This can be remedied by calculating equity per stock available for the date
(my current guess on buest solution) or by adding the non-represented stocks
to the equity using their last value (I want to avoid that since my guess on
their value for that day will always be an assumption and thus by definition
wrong compared to the market value).
> -----Original Message-----
> From: DH [mailto:catapult@xxxxxxxxxxxxxxxxxx]
> Sent: den 10 augusti 2002 16:07
> To: Omega List
> Subject: Re: A complicated (for me) question on protfolio calculations
>
>
> Are you including cash in your equity calculation? It appears
> you are not and are only including stocks you have positions
> in. I believe you should be including cash in the Sharpe calc
> as simply buying or selling a stock doesn't change the net
> mark to market value of your account.
>
> --
> Dennis
>
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