Portfolios

Resources

About us

Contact us

No single metric accurately captures the entire story or correctly provides the context for historical performance. IBKR
Asset Management provides access to a wide variety of strategies and investment methodologies and we believe in
equipping you with metrics that let you analyze the past performance of each strategy. We describe each metric, how it
is calculated and what it represents below.

Along with defining the metrics, we illustrate values by considering two hypothetical portfolios with the following simulated performance:

Disclosure: The above chart is used for illustration and educational purposes and does not portray the results of any portfolios available for investment on the IBKR Asset Management platform or in the market generally. The returns portrayed in the chart are not a reliable indicator of the performance or investment profile of any composite or client account. The above simulated returns do not represent actual trading and may not reflect the impact that material economic and market factors might have had on investments. The chart and corresponding metrics are used solely for the purpose of illustrating and explaining the concepts discussed below. Any risk metrics discussed in this presentation are for illustrative purposes only and do not represent the risk metrics of actual IBKR Asset Management portfolios. The risk metrics are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account.

When measuring portfolio value, returns are simply the money gained or lost. We represent returns in percentage terms - the ratio of the gain (or loss) to the total portfolio value. We provide returns over various trailing time frames.

For the hypothetical case:

Performance | Portfolio 1 | Portfolio 2 | Benchmark |
---|---|---|---|

Last 30 days | 3.6% | 3.8% | 3.7% |

Last 90 days | 11.5% | -5.5% | 4.4% |

Last 365 days | 32.3% | 32.1% | 15.7% |

See metric disclosures below

The following metrics are only computed when the portfolio has at least one year (365 days) of returns. IBKR Asset Management believes that the below risk metrics represent different measures of portfolio risk or portfolio risk-adjusted returns.

Volatility or standard deviation, a proxy for the riskiness of a portfolio, measures the fluctuations in the daily returns.

Over the period under consideration, the two hypothetical portfolios achieve similar 365-day returns but follow very different paths to get there, with portfolio 1 being less volatile than portfolio 2.

Portfolio 1 | Portfolio 2 | Benchmark | |
---|---|---|---|

Volatility | 20% | 38% | 11% |

See metric disclosures below

The Sharpe ratio combines the previous metrics to provide a risk-adjusted measure of portfolio performance. **Since it is
a risk-adjusted measure, the Sharpe ratio can be used to compare various portfolios and strategies. The higher the
Sharpe ratio, the better the portfolio’s returns have been relative to the risk the portfolio manager has taken on.**

IBKR Asset Management uses the 3-month Treasury bill rate as a proxy for a risk-free rate. For the two hypothetical portfolios above, these are the corresponding Sharpe ratios:

Portfolio 1 | Portfolio 2 | Benchmark | |
---|---|---|---|

Sharpe ratio | 1.5 | 0.8 | 1.2 |

See metric disclosures below

According to behavioral economics, humans are more affected by their emotions and subjective cognition. Unlike the Sharpe ratio, which focuses on overall risk, some investors may want to evaluate portfolio returns for a given level of downside risk as opposed to total risk (as upside risk can be beneficial to the investors). The Sortino ratio is calculated by estimating the excess portfolio return over the risk-free return relative to its downside deviation (i.e. standard deviation of negative asset return).

It is also a risk-adjusted measure and can be used to compare various portfolios and strategies. The higher the Sortino ratio, the better the portfolio’s returns have been relative to the downside risk the portfolio manager has taken on.

Portfolio 1 | Portfolio 2 | Benchmark | |
---|---|---|---|

Sortino ratio | 2.6 | 1.2 | 1.4 |

See metric disclosures below

Capital preservation is always a key concern for investors and the following metrics offer a sense of the risk of losses.

Maximum drawdown is a measure of the maximum amount the portfolio lost over a specific time period. It offers investors a worst case scenario but it is an incomplete measure as it does not tell investors what the other drawdowns were in the period, what the frequency of the drawdowns is, how long it took for the loss to be recovered, or even if the loss was recovered.

Portfolio 1 | Portfolio 2 | Benchmark | |
---|---|---|---|

Max drawdown | 9.1% | 33.2% | 7.4% |

See metric disclosures below

When making an investment choice, it is important for investors to have a first impression of the potential loss and the probability of its occurrence within a pre-defined time frame. Value-at-risk is a forward looking metric that measures the potential loss in value of a portfolio over a defined period for a given confidence interval.

However, for our calculations, we assume normal distribution probability which in reality may underestimate the risk because it ignores all the extreme cases.

Portfolio 1 | Portfolio 2 | Benchmark | |
---|---|---|---|

VaR | 4.6% | 8.8% | 2.5% |

See metric disclosures below

The following metrics try to capture an estimate of how much of the portfolio returns are predicted by the benchmark returns and moves in the market as defined by the benchmark.

The information ration is another risk adjusted measure that aims to measure consistency in generating excess returns above a benchmark. Mathematically, the information ratio is calculated as the ratio of excess portfolio return over the benchmark return relative to tracking error. The tracking error is defined as the standard deviation of active return (i.e., the difference between portfolio return and benchmark return).

Alpha is a measure of the performance above what was predicted by the benchmark when adjusted for the level of risk taken by the portfolio manager. It is a proxy of the benefit of the manager’s ability to deliver returns above that of the market.

Alpha is not to be considered independent of Beta and R-Squared.

Beta is a historical measure of the correlation between the portfolio and the benchmark returns. It also helps understand how volatile the portfolio is as compared to the market.

R-Squared is a measure of the part of the portfolio performance that is explained by the performance of benchmark. Normally it is between 0% and 100%.

A R-squared of 100% indicates the performance of the portfolio can be fully explained by the benchmark. However, that does not mean that the performance of portfolio is good or bad - one needs to use R-Squared in conjunction with Alpha and Beta to get a more thorough picture of the portfolio selected.

Disclosure: These risk metrics are for illustrative purposes only and do not represent the risk metrics of actual IBKR Asset Management portfolios. The risk metrics are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account.