How is the return on a paper portfolio calculated?

The return on a paper portfolio is a theoretical calculation designed to reflect how a portfolio would have performed under specific trading conditions. The correct method to calculate this return considers the actual price at which the order would have been executed compared to the decision price, which represents the price at which the investor intended to trade.

By subtracting the decision price from the price at which the order was cancelled, you get the profit or loss per share. Multiplying that result by the number of shares gives the total gain or loss from the hypothetical trading activity. This method effectively captures the impact of timing and price fluctuations on the portfolio’s performance, making it a useful measure for assessing investment decisions in a paper portfolio scenario.

This lays out a clearer picture of the potential financial outcome from the investment strategy employed, allowing investors to evaluate their decision-making processes effectively.