In one of the previous posts, we introduced the Alpholio™ app for Android. This post is the third one in a series covering the app’s services in more detail.
The Rolling Returns service compares returns of an analyzed security to those of a reference security in rolling intervals over a specified period. For example, consider a two-year period starting in January 2012 and ending in December 2013 with a rolling 12-month interval. The first comparison will be made in an interval from January 2012 through December 2012. Then the interval will move out (roll) by one month and span February 2012 through January 2013. The rolling will continue until the final interval covers January 2013 through December 2013. In total, there will be 13 comparisons between 12-month cumulative returns of the analyzed and reference security. Note that if the rolling interval has multiple time units (months in this example), successive intervals overlap in time.
Rolling returns are useful in determining the persistence of outperformance (or lack thereof) of an analyzed security vs. its reference. Unlike the typical one-, three-, five- and ten-year annualized returns, they are not anchored to a single point in time, frequently aligned to an artificial boundary of a calendar year. Instead, they cover various market conditions, especially those characterized by a high volatility. Finally, rolling returns more accurately reflect actual investment patterns.
To access the service, start the app, open the navigation drawer and tap the Rolling Returns item:
This will open a new screen, on which you can enter inputs for the chart. To expand the Dates, Return Frequency and Span sections, simply tap on each section header:
To change the analyzed or reference ticker, tap the corresponding field and use the pop-up keyboard to edit it. (If you need to find the ticker based on other information, use the Security Lookup service of the app.)
To modify either the From or To date, tap its corresponding button. This will pop up a standard date selection dialog.
To select a different return frequency, tap the corresponding radio button. Generally, monthly returns will provide smoother results than weekly or daily ones.
To change the rolling interval, tap on the Span field and use the pop-up keyboard to edit it. The span is expressed in the same units as the return frequency and has to be a positive whole number.
After you specify all parameters, tap the Get Rolling Returns button. If any of your inputs are invalid, you will see a brief pop-up warning. If all settings are acceptable, they will be saved on the device for subsequent use. Please note that to generate the chart, your device must be connected to the Internet.
After the app obtains and processes the data, you should see the following screen:
The first thing you may notice is that the bar chart begins in December 2005 and not December 2004 that was specified as the From date. That is because the first full 12-month rolling interval ends on the former date.
To zoom in on a portion of the chart, tap the + button or use a spread gesture. To scroll a zoomed-in chart horizontally or vertically, use a corresponding swipe gesture. To zoom out, tap the – button or use a pinch gesture. To immediately restore the chart to its original view, tap the 1:1 button.
Below the chart, there is a Statistics section that can be collapsed and expanded by tapping its header. The first part of the section contains statistics for rolling returns of the analyzed security. In this example, you can see that the average (mean) rolling return was lower than a median one, which indicates a left skew of the distribution. You can also see that the analyzed security had a very wide range of 12-month returns. Finally, you can see that the analyzed security returned more than the reference one in only 44% of all rolling intervals over the entire analysis period.
Scroll the Statistics section up to see the Difference part. As the name indicates, this part contains statistics for the differences of rolling returns. You can see that the median underperformance of the analyzed vs. reference security was 2% and that the differences of returns spanned quite a broad range.