Calculate total volatility of portfolio

Calculate total volatility of portfolio

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Jan
2012-03-24 18:49:44

Hi,

I would like to watch the overall volatility of my portfolio, based on the average true range. While calculating the ATR for a specific stock is easily done using the ATR() formula, I have troubles implementing this for the overall portfolio. I have two implementation options in mind:

Option 1:
weighing the ATR of each position with the overall position value (e.g. something like "sum over all positions(ATR(30)/close * position value / overall portfolio value"

Here I struggle how to call the overall portfolio value and the single position values to calculate this.

Option 2
calculating a weighted composite including all my positions, and applying the "ATR(30)/total value" formula on it. This would also have the main advantage that correlations are properly recognized.

Here I have the same issues as with option 1 plus how to translate that into a composite - and I don't know whether the composite feature would allow the proper calculation of the ATR, does it recognize open, high, low, close - or just a close value?

I am happy for help, maybe the results help some of you too.

Best
Jan

QuantShare
2012-03-26 05:57:53

Best Answer

In "Option 2", the composite will of course calculate the ATR based on open, high, low and close prices.

You can add the following formula:

composite = ATR(30);

And use "Average" as calculation method.

When creating the composite, you can reference portfolio symbols by adding a new "Internal List" condition (In Symbols Selection).

Jan
2012-03-26 08:37:52

Great, thanks for the reply.

Is it also possible to recognize the relative share/weight of a single invest in the composite? Means that if 90% of my portfolio are invested in share X, and 10% in share Y, I would like to have the value = 0.9*ATR(X) + 0.1*ATR(Y). That eventually would give me the actual volatility of the portfolio.

Thanks
Jan

QuantShare
2012-03-27 07:18:45

Currently, the only way to calculate a weighted volatility is by adding a money management script to your trading system.

Later, we will add a new "Portfolio.GetPositions()" function in "Tools -> Script Editor".

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