Page 2: Portfolio Components

This page of the QPP Contents Guide goes over Page 2 of the Portfolio Report, the main body of QPP. This guide will describe what the inputs and outputs mean. Also, default settings, if any, are given. Furthermore, links to articles illustrating the specific features will be given.

NOTE: Quantext is not a registered investment advisor.  No information in this document should be taken as advice to buy or sell any asset.  Any and all information obtained from Quantext is on an "AS IS" basis. Please note that the numbers/tickers used in the QPP screen shots and examples are for illustrative purposes only and are not to be taken in any way as advice.
Figure 2a: This is the left hand portion of QPP’s page 2.

Fund or Stock Ticker: QPP will go out onto the web and retrieve historical data on the tickers listed in this column. You can include up to twenty tickers in this list, even if you do not plan to use all of them in your portfolio. (On page 3 of QPP you allocate percentages of the portfolio to these tickers; you can allocate 0% to some tickers.) The tickers can be in any order. (The one exception is if you are planning on using the Stock Options Tool. In this case, the stock for which you plan to consider call options or employee stock options must be in the top ticker slot. QPP will only handle one stock for options considerations.)

Please be aware that the tickers in this column must be typed correctly, and that the tickers must be acceptable. ETFs, mutual funds, and individual stocks, as well as some others, are acceptable. Acceptable tickers include those listed at Yahoo!Finance that have historical data available. For more information on identifying acceptable tickers, please see our Troubleshooting Guide, Tip 12.

Finally, please note that these ticker slots may NOT be left blank. See the bottom three ticker slots in Figure 3a. Most versions of Excel will allow a “-“ to be put into the ticker slots. However, if you experience an error message, see Tip 2 in the Troubleshooting Guide.

Beta: This is forward-looking Beta for the individual ticker. QPP calculates this by combining the assumed, forward-looking, long term behavior of the market with the historical data retrieved from Yahoo!Finance. This Beta and Historical Beta will be similar, as Beta is preserved in QPP. Beta is essentially an indicator of the returns from S&P500 drive the returns of the portfolio. For a more detailed definition of Beta, please see: http://www.investopedia.com/terms/b/beta.asp

Standard Deviation (Annual): This is the forward-looking annual standard deviation for the individual ticker. To calculate this quantity, QPP combines the assumed, forward looking, long term behavior of the market with the historical data retrieved from Yahoo!Finance. Standard deviation is a measure of volatility; it is a measure of risk. For a more precise definition of standard deviation please see: http://www.investopedia.com/terms/s/standarddeviation.asp

R^2: This is the historical R^2 (“R squared”) for the individual ticker. R^2 is a measure of how closely the ticker tracks the market, specifically, the S&P500. For a more precise definition, please see: http://www.investopedia.com/terms/r/r-squared.asp

Check: This column will fill with “OK”, “Short Record”, and/or “Bad Data” responses once you have sent QPP to retrieve data from the web. Unless all of the rows with tickers in them have “OK” in the check column, the results from the rest of the program are not valid. Short Record means that there was not data available for the whole time period that was specified on the far right of page 2 of QPP. Bad Data can mean several different things. It will require that you go to Yahoo!Finance (http://finance.yahoo.com/q?s=PNCIX) and check that the ticker is listed and does have historical data, most easily seen on the graph to the lower right side of the Yahoo!Finance screen. For more details, please see Tip 12 in our Troubleshooting Guide.

And further to the right of QPP’s page 2:


Figure 2b: This screen shot is of the far right of QPP’s page 2.

General Information: Choosing the Historical Period

In this box, you are specifying the period of time for which QPP will retrieve data and base its calculations. Three to five years is what we have found to be the most useful.

For tickers that do not have the requested three (to five) years of data, QPP will put short record in the Check column (page 2 of QPP, shown above in Figure 2a.). You can't run with a ‘short record’; the check column must fill with OK for every row in which there is a ticker.

If you decrease the period too drastically, say, set the historical period to 1 year, the statistics will not be stable. A range of testing suggests that three to five years for the historical data period is good because there is enough data for major stocks and funds and the statistics are stable. You can try a longer historical period, say 10 years, but you are more likely to encounter a short record. Also, the information you are using if you are running with a 10 year historical period, is not as representative of present behavior. (The portfolio planner already accounts for long term risk – return behavior of the market.)

We have found remarkably good results using a standard of three years of data.  That said, Quantext endorses stress testing with other historical periods.  If you get substantially different results with five years of data vs. three years, you are a victim of 'over tuning' the model. In an environment where the volatility is in considerable flux, it is more likely that you will see portfolio risk change in time. It is a good idea to test a portfolio in a range of market conditions.

Other than leaving something with a short record out, you can find a proxy (a similar company, ETF, or fund.)  You can check graphs of their data on Yahoo!Finance (Y!F) to make sure that they have behaved similarly. At Y!F one can pull up the maximum length graph for one ticker, and from that screen, ask Y!F to overlay the graph of any other ticker for comparison. Directly below is information on individual bond proxies and cash proxies. You can also use index data in the portfolio as a proxy for a short lived index fund. For example, the commodity ETF, DJP, tracks the Dow Jones-AIG Commmodity Index which can be obtained on Y!F using the ticker ^DJC. If you use ^DJC in place of DJP, change the Increase in Average Return variable (on the right side of page 3) to reflect the expense ratio in the ETF vs. the index (which has zero expenses).

Proxies for Individual Bonds: QPP won't handle individual bonds.  You can use a bond fund, such as AGG, as a proxy when trying to model an individual bond. --or use an ETF that invests in inflation protected bonds, TIPS (TIP).  --or, you could look on Yahoo!Finance for a bond fund that suits your purposes.

Proxies for Cash in Portfolio: For cash, PNCIX, an ultra short bond fund that is publicly traded, can serve as a proxy.  (You can try publicly traded money market funds, also.  Some are offered as cash repositories for clients, but are not publicly traded, however.)  For more details, please see Tip 12 in our Troubleshooting Guide.

Start Date: This defines the earlier end of the historical period that you would like to retrieve data for. For example, if you would like to study the three years from April 30, 2005 through April 30, 2008, the Start Date would be 4/30/2005 (and must be entered in that format.)

End Date: Continuing our example, the End Date would be 4/30/2008.

GET DATA: Hit this button once you have entered the tickers on page 2 of QPP, the Start Date, and the End Date, (as well as the password and username from page 1). By hitting this button, you are asking QPP to go out onto the internet to retrieve data. To do this you must be connected to the internet. Any high-speed connection will work. Dial-up connections sometimes work, but cause issues with “hanging up” much more frequently.

Months: This is calculated by QPP based on the Start and End Dates entered by the user.

If QPP does not calculate this quantity correctly after you have entered the Start and End Dates, first check to see that Excel’s Calculations are set to Automatic (Tip 3, in the Troubleshooting Guide.) If that does not do it, please see Tip 13 in the Troubleshooting Guide about number formats.

Years: This is calculated by QPP based on the Start and End Dates entered by the user.

If QPP does not calculate this quantity correctly after you have entered the Start and End Dates, first check to see that Excel’s Calculations are set to Automatic (Tip 3, in the Troubleshooting Guide.) If that does not do it, please see Tip 13 in the Troubleshooting Guide about number formats.

Preserve R^2? (answer Y or N in the box) This is asking you if you would like QPP to keep the projected R^2 the same as the historical R^2 for the portfolio. QPP does preserve Beta. The Preserve R^2 option was built into the original version of the software, but for most (if not all) of Quantext’s benchmarking, R^2 is not preserved. N is our default setting.