Hello Team,
How to calcuate the portfolio turnover ratio if our portfolio consisting of N no. of stocks having different weights & overall portfolio is rebalcning at regular interval lets say weekly or monthly
Hey Manoj,
The steps to calculate the portfolio turnover ratio are as follows:
- Sum up the total stocks bought during the year
- Sum up the total stocks sold during the year
- Compute the average monthly net assets throughout the year
- Divide the minimum of either the stocks bought or sold by the average monthly net asset.
To explain further, let's consider this example:
Let's say you bought 10 stocks of Apple for $100 and 8 stocks of Tesla for $80. The average monthly net asset of your portfolio is $1000. In that case, the portfolio turnover will be 8% (80/1000 x 100 = 0.08).
This formula applies to rebalanced portfolios as well, irrespective of the rebalancing frequency.
Hope you find this helpful!
Thanks,
Rushda Ansari