(Although this is perhaps a very simple question, math-wise, it still has me puzzled so it's okay to ask for help here I guess. I really need to understand this, so any help is appreciated)
First, assume the S&P100 market index has performed like this on the first 3 days of the month:
day open close return (abs) return (%) ---------------------------------------------------- 1 574.19 562.51 -11.68 -2.03 2 564.56 570.72 6.16 1.09 3 571.99 572.93 0.94 0.16
In other words, "the market" went down 11.68 or -2.03% on day 1. Now asssume that I have bought and sold the following stocks on each of these 3 days:
day stock buy sell return (abs) return (%) ------------------------------------------------------------ 1 HPQ 40.81 40.14 -0.67 -1.64 2 FDX 89.79 87.89 -1.90 -2.12 3 PEP 63.49 63.24 -0.25 -0.39
So on day 1, I bought and sold HPQ for a return of -0.67 or -1.64%. I now want to calculate, in %, how my trades performed against the market:
day market return (%) my return (%) excess return (%) ------------------------------------------------------------------- 1 -2.03 -1.64 0.39 (-1.64 - -2.03) 2 1.09 -2.12 3.21 3 0.16 -0.39 -0.55 ------------------------------------------------------------------- total -0.78 -4.15 -3.37 (-4.15 - -0.78)
For instance, on day 1 the market went down 1.64% but the stock I bought only went down 1.64%. In other words, my trade "outperformed" the market by 0.39%. When totalling, the market lost 0.78% during the three days, but my trades lost -4.15%. The way I interpret this, my trades underperformed 3.37% against the market.
Alternatively, if I take the first (574.19) and last (572.93) price of the market indexfund, the market only declined ((572.93 - 574.19) / 574.19) * 100 = -0.22%. Based on this number, my trades underperformed the market by -3.37 - -0.22 = -3.15%
Question 1 How do the 2 market performances that I calculated (-0.78% and -0.22%) relate to each other?
Question 2 How do I correctly culculate the relative performance of my trades against the market? Is is -3.37% or -3.15%? And if it's neither, how do I calculate with how many % my trading outperformed (or underperformed) the market?
[edit after thinking about incorporating overnight returns]
day stock close@yesterday open@today close@today return (abs) return (%) ------------------------------------------------------------------------------ 1 HPQ 40.00 40.81 40.14 0.14 0.35 2 FDX 90.00 89.79 87.89 -2.11 -2.34 3 PEP 64.00 63.49 63.24 -0.76 -1.19 ---------------------------------------------------------------------------- + -3.18
(today's opening price is just there for reference. I've calculated return (abs) as close@today - close@yesterday and return (%) as (return (abs) / close@yesterday x 100))