Cole Wins Above Replacement Portfolio (CWARP™)

"People who run ball clubs think in terms of buying players. Your goal shouldn't be to buy players. Your goal is to buy wins."

Paul DePodesta, Moneyball

What matters in sports is whether a player helps the team win. What matters in investing is whether an asset improves the risk-adjusted returns of your total portfolio. Every year trillions of dollars in investment decisions are made based on Sharpe Ratios. Still, paradoxically, collections of high Sharpe assets can actually make an investment portfolio more unstable and fragile.

The investment industry is stuck buying players and not wins.

To correct this problem, Artemis invented a new metric inspired by sports analytics called COLE WINS ABOVE REPLACEMENT PORTFOLIO (CWARP)™. CWARP is a one-stop-score for the asset management industry that measures whether any alternative investment improves or hurts the pre-existing portfolio. Our research paper demonstrates that, unlike Sharpe Ratios, collections of high CWARP investments actually improve a portfolio's position on the Efficient Frontier of Return and Risk. The score offers similar insights derived from full portfolio optimization, but it is much easier to implement and rank investments via a tear sheet.

CWARP™ is easy to use and interpret:

CWARP™ > 0 means the new asset is improving your portfolio by increasing:

1) Return to Downside Volatility;

2) Return to Maximum Drawdown;

3) or BOTH

CWARP™ < 0 means the new asset is hurting your portfolio by replicating risk exposures you already own resulting in higher portfolio drawdowns and volatility

To show this effect, we rank major hedge fund indices by CWARP and show their effect on a portfolio of Equity Beta and 60/40.

In summary: High Sharpe Ratios ensure managers get paid. Higher CWARP scores ensure your portfolio gets paid.

Allocator, is the first alternatives data platform to begin publishing CWARP™ alongside traditional metrics to help investors.

GITHUB REPOSITORY WITH CWARP™ IMPLEMENTATION CODE

At the link below, we provide Python notebooks that will allow any practitioner to implement CWARP calculation. Please feel free to use the code in your investment practice, made available free for public use