How is performance calculated?
Your Revolut trading portfolio and trader profile performance is calculated using the time-weighted rate of return (‘TWRR’).
TWRR is a figure that tells you the percentage gains that your investments have made over a particular period of time. This is a metric used to compare your returns to benchmark figures or other investors’ results.
The TWRR is calculated by breaking up the period of time over which you’ve been investing into smaller chunks. Each time you deposit or withdraw cash from your account, it marks the end of one period and the start of another.
When you calculate TWRR, you’ll look at how your investments performed in each of these time periods and then combine the results together.
The percentage figure you are left with gives you an indication of how the assets you’ve invested in have performed in the timeframes you held them.
TWRR is a measure to track relative portfolio performance, as it eliminates the skew caused by cashflows in and out of the portfolio (i.e. top-ups / withdrawals).
How to calculate TWRR ?
There are a couple of key steps involved in this calculation including:
- Dividing the entire period into sub-periods
- Calculating the rate of return for each sub-period
- Calculate the TWRR
First, create a new sub-period for each period in which cash moved in or out of the portfolio. This will yield multiple periods with a rate of return. Make sure to add “1” to each of the return amounts; this makes it easier for you to calculate negative return numbers.
Rate of return:
Next, you’ll want to calculate the rate of return for each of your sub-periods. You can do this by subtracting the beginning balance of the period from the ending balance of the period. Then divide the difference by the beginning balance of the period.
Finally, multiply the rates of return for each sub-period, then subtract “1” to yield your TWRR. The formula looks like this:
TWRR = [(1 + RR^1) x (1 + RR^2) x … x ( 1 + RR^n )] – 1
- TWRR = Time-weighted Rate Return
- n = Number of Periods
- RR = (End Value – Initial Value +/- Cash Flow)/(Initial Value +/- Cash Flow)
- RR^n = Return for Period “n”