What is portfolio autocorrelation?
QRP and QPP both calculate an historical statistic called portfolio autocorrelation. This is a recent feature and is not yet included in the user manual / textbook. Portfolio autocorrelation is the correlation in portfolio returns from one month to the next. If it is positive then high returns tend to be followed by high returns and vice versa. If portfolio autocorrelation is negative, then the portfolio returns tend to be ‘mean reverting’ which means that very high return months tend to be followed by returns closer to the mean–the portfolio tends to damp out periods of very high or very low returns. Portfolio theory generally assumes that autocorrelation is zero–the random walk. QPP and QRP model the market as though autocorrelation is zero, and the metric shown is for historical performance. If you have a portfolio that shows a lot of positive autocorrelation, this is a flag–this means that big swings get amplified.
