Choosing a Denominator for Portfolio Returns from PnL and Exposure

Summary

The document considers how to express portfolio performance as a percentage when daily trading PnL and exposure are available but beginning and ending account asset values are not. It highlights that exposure may change because of accumulated PnL, yet cash inflows or outflows can also alter it, so exposure alone does not reliably reveal the portfolio’s capital base.

The answer recommends calculating return relative to the account margin backing the exposure. As an alternative, it suggests reporting PnL relative to gross market value, defined as the sum of absolute exposures. These denominators answer different questions: margin-based return relates performance to capital committed, while gross-market-value return scales it by trading exposure. The response is brief and provides no annualization formula or treatment of cash-flow timing, so a defensible annual return still requires choosing and consistently applying a clearly defined denominator.

Key ideas

• PnL and exposure alone do not identify the account’s capital base when cash flows can occur.
• Margin backing the exposure can serve as the denominator for a capital-based return measure.
• Gross market value, calculated as the sum of absolute exposures, offers an exposure-based alternative.
• The denominator should be defined consistently because margin return and gross-market-value return measure different things.

Tags

# How to calculate annual portfolio return using daily trade PnL and only total exposure taken. No asset values available


# How to calculate annual portfolio return using daily trade PnL and only total exposure taken. No asset values available












Total beginning/ending assets are not given, just the PnL and each days exposure.

Important to note that sometimes the next day's exposure is equal to prior day exposure + prior day PnL but not always. Sometimes there is a big cash inflow/outflow. When the timing and magnitude of the exposure is not consistent. Portfolio return needed in % terms.

## Answer by Newquant (score 1)

https://quant.stackexchange.com/a/82235

What's your account margin backing the exposure? That's what you should calculate your return against. You can also calculate return on GMV (gross market value -> sum(abs(exposure)).

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.