A flask app for users to create a custom, daily rebalanced indices of U.S equities and ETFs. Also supports a more simple, one time balanced customized portfolio to answer the question of "what if I had bought **___** and left it alone?". Hosted at MakeYourEtf.com!
This started as an effort to democratize index calculation and ETF composition for investors and traders who don't work in QIS or any similar structuring role. In my work as a quant in the indexing space, I learned all the nuances of index calculation, rebalancing, and volatility control that weren't remotely taught through schooling.
I didn't even realize that the DJIA wasn't rebalanced daily until I found the methodology and saw for myself. This was only after an hour or two of staring at my notebook at 2 A.M in the WeWork wondering why my own calculation, using the same exact market data, wasn't adding up.
Many people in the indexing space are keen to explain rebalances and how ETFs aren't just piles of stocks without offering any actual insight to curious people. I wanted to include the ability to differentiate between a buy-and-forget portfolio and a daily index to offer a better, visual understanding rather than pointing people at methodology documents.
I hope this reaches students who are interested in quantitative careers out of undergrad. I feel like roles in S&T and market making are unnecessarily gate-kept in terms of the accessability of concepts to undergraduate students. I'm extremely grateful to the faculty at NYU's Department of Financial and Risk Engineering, who made active efforts to be inclusive and offer academic structure for undergradutes despite being a masters-only program.
The two seperate modes of calculation are to differentiate between a fixed portfolio and a daily rebalanced index. The methodologies are as follows (Detailed walk-through description is below)
Lets take a portfolio worth $1000, with 50% in equity $ABC, and 50% in $XYZ. Lets assume $ABC and $XYZ both are trading at $10. After 1 day, $ABC records a 10% gain, closing at exactly $11/share. This same day, $XYZ suffered a 10% loss, closing at $9/share. The portfolio will still be worth $1000.
However, our portfolio is no longer balanced! At market open on day 2, our stake in $ABC will be worth $550, making it 55% of our portfolio. This is how a typical retail investor's portfolio would be; this feature is for 'what if I owned __ back in ___ and left it alone?'. No changes are made, and that's how the Portfolio function operates. Please use this liberally to dunk on your friends and family about how smart they woulda/coulda/shoulda been
Should we treat this like an index, the promise to the customer is a constant exposure to ABC and XYZ at the same amount. The next day, we would want to offload $50 worth of $ABC, and acquire $50 worth of $XYZ in order for our portfolio to be balanced again. This is what firms who host any index ETFs are responsible for when their indices are rebalanced (Not all indices rebalance daily; SPX is quarterly, for example).
Please feel free to share your robust indices with me on twitter or linkedin. Or inverse some Stern/Wharton professor you hate.
Inspiration, code snippets, etc.