Over 50 risk and performance statistics can be calculated instantly for any of the following Nucleus entities:
Hydrogen uses two methods to calculate performance. Each entity in the documentation will notate which method is used. These two methods include:
IRR (Internal Rate of Return)
IRR, also known as dollar-weighted return, calculates the performance of a portfolio while incorporating inflows and outflows. Therefore, the timing of deposits and withdrawals substantially affects the return rate, with larger cash movements having a greater impact on performance compared to smaller changes in cash. IRR is a useful tool to calculate the absolute return of a portfolio and for determining whether a portfolio is growing at a return necessary to meet an investment goal. Therefore, IRR is used mostly by Hydrogen for account and client-related performance measures.
TWR (Time Weighted Return)
TWR captures the true performance of a portfolio by removing the impact of cash inflows and outflows on the portfolio’s return. It reflects the effects of portfolio composition on return, without considering the effects of the client’s deposits or withdrawals. TWR captures the return of the very first investment into a portfolio. At Hydrogen, we use TWR for all performance calculations which do not have cash flows. This includes allocation, benchmark, model, and security performance, which do not change based on total assets invested in them. TWR is also required by the Global Investment Performance Standards (GIPS) published by the CFA Institute. Calculating returns using TWR is the better method of calculating a manager’s performance and analyzing the performance of a portfolio’s underlying assets.