I understand the concept behind the sum except, why do we divide it by 4 in index and by 2 in Tactical. Why are we trying to calculate the average?
4 items in the index, 2 in the tactical. Simple averaging.
honestly, super silly question. Why average it?
You own $10mn each in two shares of two firms.
A returns 10% + $1m
B return 20% + $2m
What is you total % return?
30% or 15%
(3m / 20m) = 15% = (10 + 20)/2
Index has 4 equally weight stocks.
Tactial has 2 equally weigted positions.
Not exactly 2 in the tactical.
Two equally-weighted long positions (which are averaged) and two equally-weighted short positions (which are averaged). That explains the two twos as well as the negative sign.
Not exactly.
It has two equally-weighted long positions (which are averaged) and two equally-weighted short positions (which are averaged). Four positions altogether.
Thanks!
This clears it. Thanks!
My pleasure.