How TipRanks Measures User Performance

HomeGlossaryHHow TipRanks Measures User Performance

There are two types of performance measures for users, one is your performance as a stock picker, the other as a portfolio manager.

The “My Performance” page is updated every 24 hours to reflect the most recent state of your portfolio.

Stock Picker Performance

TipRanks measures your performance as a stock picker by treating each buy or sell action you make as a “recommendation”, in a similar manner to analysts. When you buy a stock, our system interprets it as a one-year recommendation on that stock; however, if you close that position earlier, it measures performance only up to that point.

The first indicator “Success Rate” measures your hit ratio; each trade (or recommendation) you make either yields a profit or loss. The success rate is determined by the total amount of your successful trades divided by the total number of trades.

The “Average Return” is an indicator of how well your picks performed. It represents the average gain/loss of your trades.

Portfolio Manager Performance

Users who have uploaded their stock picks to the smart portfolio, and allocated funds by updating the share count are measured as portfolio mangers (aside from the measurement as stock pickers). Our measuring assumes your portfolio is always 100% invested, and measures the change.

For example, on day one you invest $1,000 in a stock which then goes up by 10%. Your return is $100 and your portfolio value is $1,100. On day two, you invest an additional $10,000 in a different stock. It goes down 5%, meaning you lose $500 on your second investment.

At the beginning of day two your portfolio value was $11,100. It comprised of your end of day value from day one plus your new investment from day two. At the end of day two, your portfolio value was down to $10,600. This is your end of day value from day one, plus your end of day value from day two.

According to TipRanks, your overall portfolio return is 5.05%. 10% from day one and -4.55% from day two (1.1*0.955=1.0505=5.05%).

The return is then divided by the standard deviation of the portfolios daily percent change (adjusted for the time period). After dividing your returns by the standard deviation we derive the Sharpe ratio of your portfolio. This gives a measure of how much risk was taken to achieve the return.

To clarify, if two users (one who took high risk stocks and the other low risk) both have 50% return, they would not rank the same. This is because the one who took less risk and achieved the same return is actually a better trader, and his Sharpe ratio would reflect that.

Our last parameter is time. To ensure that new users with exceptionally high returns (because of luck mostly) do not jump to the highest ranks, the Sharpe is normalized for the amount of time since the portfolio’s creation date. The penalty decreases quickly throughout the first month (allowing you to move up and down in ranks), and is completely removed after one year of trading.

Here are the three things you need to do in order to be measured as a portfolio manager.

  1. Create a free TipRanks profile and create a portfolio on the SmartPortfolio.
  2. Upload the share price for at least 5 positions (If you have done so with three in the past then simply add two more, not all five need to be active at once). Make sure to not simply put 1 share, you must actually allocate realistically, else the system wont rank the portfolio.
  3. If the portfolio is brand new wait 2 trading days for the system to rank your performance.

Portfolio Manager Ranking Score Formula