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Strategies & Market Trends : A.I.M Users Group Bulletin Board
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To: bob wallace who wrote (11379)6/2/2000 6:05:00 PM
From: OldAIMGuy  Read Replies (3) of 18928
 
Hi Bob, RE: ROCAR

This stands for Return On Capital At Risk. It's a way of measuring AIM's performance relative to Buy&Hold. Since AIM is handicapped with a significant portion of its total value tied up in money market funds much of the time it has a hard time competing with Mr. Buynhold in a bull market.

However, since the Cash Reserve is essentially at no risk, we need to do something in the overall analysis to see if AIM's doing us any good. To calculate ROCAR, I take the percentage at risk for each period and average them. Then I take the AIM Total Return and divide it by that average value.

For instance, let's assume that our AIM account has gone from $10,000 to $15,000 over the period of two years. That would be a total return of 50% and includes the cash reserve. However, let's assume that the account was only 66% at risk for the entire period with 34% average being in cash. We would divide the 50% total return by 0.66 and this would give us the risk adjusted return of 76%.

This account
aim-users.com
for instance has remained approx. 75% invested (on average)for the entire time shown on the graph. The total return has been 221% but because only 75% (average) has been at risk, the ROCAR calculates to be about 295%. Mr. Buynhold has a 184% Total Return. So, AIM wins on a total return basis AND on a ROCAR basis.

Any method of investing that involves the periodic use of Cash should really be analysed via the ROCAR method for comparison. If a market timer is 100% invested 75% of the time and 0.0% invested 25% of the time, he too has an average risk exposure of 75%.

Hope this helps more than it confuses!!

Best regards, Tom
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