Description
Divide factorReturn by scale and subtract the supplied normalized reference.
A simple return is a change relative to an initial value, while a gross return is a wealth multiplier and a log return uses a logarithm of that multiplier. Dividend, split, fee and currency conventions change what is included.
Divide factorReturn by scale and subtract the supplied normalized reference.
When to use this tool
Use Factor Return Normalization Gap when you need a stated return-basis conversion or contribution.
How to use the tool and how it works
- Enter factorReturn, factorScale, referenceNormalizedReturn. Use the units and conventions below.
- Run the tool. Correct any format, range, or cross-field input error before interpreting the output.
- Read normalizedReturn, gap. Use the output convention below.
Require positive factorScale. Divide factorReturn by scale and subtract the supplied normalized reference.1
| Input field | Meaning and units | Accepted input |
|---|---|---|
| factorReturn | Factor Return | Required. Finite number. |
| factorScale | Factor Scale | Required. Finite number; strictly above 0. |
| referenceNormalizedReturn | Reference Normalized Return | Required. Finite number. |
| Output field | Interpretation | Returned shape |
|---|---|---|
| normalizedReturn | Normalized Return | Required. Finite number. |
| gap | Difference on the stated unit and subtraction basis. | Required. Finite number. |
{
"input": {
"factorReturn": 0.06,
"factorScale": 0.02,
"referenceNormalizedReturn": 2
},
"output": {
"normalizedReturn": 3,
"gap": 1
}
}Limitations and assumptions
- Scale changes the numeric factor convention; it is not automatically a standard deviation or a statistical standardization. All inputs must use the intended return basis.
- Inputs must satisfy both the field types and the cross-field conditions above. Invalid input causes an error; a successful false flag or documented placeholder is a different result.
- Numeric calculations use binary floating point unless exact decimal-integer arithmetic is explicitly stated. No hidden measurement tolerance or decimal rounding is added; nonfinite or out-of-contract results are rejected. Numeric signed-zero results are exported as zero.
Alternative or Complementary methods
Reconstruct the full investment cashflow and adjustment history for performance analysis. Align horizons, quote direction and numeric return scales, and include relevant fees and taxes explicitly.
References
Similar or alternative tools
- Factor Exposure Centered Term
Subtract meanExposure from exposure and multiply by factorReturn.
- Factor Model One Exposure Return Term
Multiply factor return by current exposure and separately by exposureChange.