What are Portfolio Opportunity Distributions (PODs)?
One more piece of information that aids in calculating sector and style returns is something that is known as a Portfolio Opportunity Distribution (POD). Represented in the attribution report as a floating blue and green shaded bar, a POD is defined as the range of returns, for a given sector and time period, that were possible for a portfolio of stocks. This range, or distribution of returns is calculated by generating thousands of hypothetical portfolios, and observing what those portfolios would have returned. The bars are segmented into percentiles- the top of the bar is the 95th percentile, and the bottom is the 5th percentile. That means that 90 percent of the returns available in the market for that sector are captured in the POD, but there are returns possible both above and below the POD. Where you end up relative to the POD gives you an idea of how skillful you were in the given sector.
