Sept. 1, 2017 – Winton has launched the Future Tool, a Monte Carlo simulation that lets users explore the impact on portfolio returns of changes in underlying investment assumptions.
Forecasting the performance of an investment portfolio is tantamount to envisaging the range of probable outcomes that could arise from that portfolio. By using Monte Carlo simulation – a computational technique that involves repeated random sampling - the Future Tool transforms this complex task into an elegant and interactive data visualisation.
The Future Tool allows investors to plug in a forecast Sharpe ratio and correlation for a given number of strategies, funds or markets, along with a target portfolio volatility, and thereby simulate the resulting portfolio’s performance over a time horizon of up to 40 years into the future.
Many people are familiar with concepts such as the power of diversification, the corrosive impact on long-term portfolio returns of even moderate correlation between strategies or funds, and the fact that the most skilled managers can still go through patches of poor performance. The Future Tool conveys these effects in a visceral way.
Users can adjust key inputs to examine the potential outcomes if their forecasts exceed or fall short of expectations, the influence that changes in these various measures can have on overall returns, and the wide range of portfolio outcomes consistent with the same underlying assumptions of skill and correlation – that is, the role of chance.
Find out more, at: winton.com/the-future