All traders participating in a competition will be scored and ranked at the end of each competition day. The following sections document this ranking process.
Return Calculation
First, the percent return for each trader's portfolio is calculated using the following formula:
- PortfolioValue is the current portfolio value
- PortfolioStartValue is the starting cash at the beginning of the competition
Score Calculation
The resulting Return value is then fed into the next formula to determine the trader's portfolio score:
- Return is how much the portfolio returned over the length of the competition
- RiskFactor is a calculation of the portfolio's volatility
The RiskFactor is included because return-based trading contests are often won not by the trader who would make the most money over the long term but by the trader who takes the most risk and just happens to get lucky within the time frame of the contest.
RiskFactor attempts to distinguish between consistent traders and lucky traders.
Risk Factor Calculation
In order to calculate the
RiskFactor, a value based on the portfolio's volatility, we must acquire
N intermediate portfolio values. These N intermediate values consist of the V0 = StartValue and V1...Vn-1 which represent the end of day values for every day in the contest regardless of the contests length. In WTCs there will be 6 intermediate values. MTCs will have approximately 21 and QTC's will have around 61.
From the N intermediate portfolio values,
N-1 percentage change values are calculated using the following formula:
These percent change values are averaged:
Finally, RiskFactor can be calculated using the following formula:
For volatile portfolios, RiskFactor^2 will be the standard deviation of the intermediate returns in percentage terms.
For example, if RiskFactor^2 = 5, then the standard deviation of intermediate returns would be approximately 5% of the portfolio's value.
For non-volatile portfolios, the 0.01^2 term will dominate and RiskFactor will be near 1.
RiskFactor cannot be less than 1.
Competitions will be either rated or unrated. Unrated competitions will have no effect on a trader's rating, but all rated competitions a trader participates in will affect his/her rating, After a rated competition finishes,
all participants will be ranked by their scores after the final day of the competition. These rankings will be compared to their expected ranking based on their incoming rating vs the rating of all traders in that competition.
Traders who outperform their expected ranking for a rated competition will see their rating rise and traders who underperform will see their rating fall.
