Reconciling Net Profit Percent and Annual Return Percent

AmiBroker
1

The first day of back-testing a system showed a $20.24 profit on $6,000 of initial capital, for a net profit percent of .34%, and an annual return % of 241.85%. I’m having a difficult time reconciling the two. For example, if I grow a $6,000 investment at .34% compounded daily for 250 days (about a full trading year), I end up with roughly $8,300 interest. So I’m confused as to what the 241.85% is about. Thanks very much.

2

You can use an Excel spreadsheet (or maybe some web site). The return results you mention seem to be using all calendar days, i.e. compound growth of 0.34% for 364 more days. The initial 6,000 grows to 20,570 which equates to an annual cagr of 242%.

I can't attach a spreadsheet to this post but here is a screen capture of what the results are (the actual calculations in the Excel cells I can send if you need)

P.S. even at the 250 day mark how did you do your calculations?? This simple spreadsheet shows a different number at days 250 or 251 than your $8,300.

2 Likes
3

@portfoliobuilder is right.

Also reading the manual is not bad idea at all, see “Note: Calculation method used for annual percentage returns”.

http://www.amibroker.com/guide/w_report.html

(scroll down to the bottom where you will find the answer).

4

Thank you so much for your time on this - really appreciated. The difference I think between your $13,970 and my “roughly” $8,300 is primarily due to my subtracting out the original $6,000 (to focus just on profit, and is comparable to what is used for the .34% factor), and to a tiny degree my actually using (by mistake) a .35 growth rather than the correct .34 which you used. But by far the biggest conceptual difference was my thinking that compounding for 250 days (roughly one full trading/calendar year) - rather than 365 days - was the most appropriate time frame. I’m really new at this, but I believe that use of 250 days of compounding and focusing only on the profit component would make most sense in discussing a trading system against e.g. other types of investments. But in any case, again, thanks for clarifying this for me.

5

Using 250 days is wrong because:

  1. interest is earned every calendar day (including weekends)
  2. price gaps happen much more often over weekends than between regular week days so friday-monday gap is statistically different than monday-tuesday gap
6

Thank you Tomasz.

Regards,
Robert (Bob) Lerner