Voyant comes packaged with default market assumptions from a third-party provider. We do this so you can begin using all of the software's functionality immediately, without being required to source a set of market assumptions first.
If your firm would prefer to use its own set of market assumptions and asset classes, you are able to add custom market assumptions to your subscription. This can be self-managed or added via a white label. Either way, you will need two files, formatted as set out below.
Two files are required to define market assumptions and asset classes
To add a new set of custom market assumptions and asset classes to your subscription, you will need two files.
1. An investment averages file, defining the asset classes together with the average return and standard deviation for each asset class.
2. A correlation coefficient file, defining the correlation coefficient matrix between each of the asset classes.
Sample files can be found in our document library and on the Custom Market Assumptions input screen:
Important Note: Both files should be in a comma-separated value (.csv) format.
The investment averages file
The investment averages file should contain the average return and standard deviations for each asset class in the custom set of market assumptions.
Asset classes are defined by their presence as columns in the investment averages file. Each class must be formatted in uppercase with an underscore used to represent spaces (e.g. SUB-INVESTMENT_GRADE_BONDS).
The software will parse these column names smartly, for example:
LARGE_CAP_STOCKS will be parsed and displayed in Voyant as “Large Cap Stocks”;
SUB-INVESTMENT_GRADE_BONDS will be parsed and displayed in Voyant as “Sub-investment Grade Bonds”
One asset class, CASH, is required.
There is no limit on the number of asset classes; however, fifteen is the recommended maximum. Introducing over fifteen classes may affect their display in the software.
There is no limit on the number of asset classes; however, fifteen is the recommended maximum. Introducing over fifteen classes may affect their display in the software.
Tip - asset class names: think carefully about asset class names as changing them can create error messages in existing plans which already use different asset classes.
Formatting requirements
- Asset classes, which serve as the column headings, must be formatted in all uppercase with underscores used to represent spaces.
- Numbers should be input in decimal format to a maximum of 4 decimal places e.g. 1.1% should be .011 no percent symbol should be used.
- CASH is a required asset class with all others being defined by you.
- The Investment Averages file should be sent to Voyant in a comma-separated value (.csv) format.
The following example shows how a investment averages file should be formatted. Please note that the values shown are test data, used only for example.
Tip - assumptions include yield: If you input true, the interest or dividend yield in the assumptions will be deducted from the mean to get the capital appreciation rate. As an example, if the mean is 7% and the interest yield is 4% for a particular asset class in the csv file, the capital appreciation rate in the software for an account invested 100% in that asset class would be 3%, the yield would be 4% and the total return would be 7%.
If you input false, the interest or dividend yield in the assumptions will be added to the mean to get the total return. As an example, if the mean is 7% and the interest yield is 4% for a particular asset class in the csv file, the capital appreciation rate in the software for an account invested 100% in that asset class would be 7%, the yield would be 4% and the total return would be 11%.
The correlation coefficient file
The correlation coefficient file defines the correlation coefficient matrix between each of the asset classes in the market assumptions set.
Important note: Asset class names used in this file must match, verbatim, those defined in the investments averages file.
The correlation coefficient indicates the strength and direction of a linear relationship between two random variables. The correlation coefficient ranges from +1, indicating a perfect positive linear relationship, to -1, indicating a perfectly negative linear relationship.
The correlation coefficient indicates the strength and direction of a linear relationship between two random variables. The correlation coefficient ranges from +1, indicating a perfect positive linear relationship, to -1, indicating a perfectly negative linear relationship.
One major caveat applies to the use of a correlation coefficient matrix in Voyant. The correlation coefficient must be positive definite. For this reason, the correlation coefficient matrix cannot be random, as random numbers usually result in matrices that are not positive-definite.
One recommended way compute the correlation coefficients for a data set is to use the Excel CORREL function on the historical prices for each combination of asset classes.
1. Take the historical prices (dating back as far as possible) for each asset class and add them to an Excel spreadsheet.
2. Use Excel functions to compute an average and standard deviation for each asset class.
3. Then using the historical prices for each combination of 2 asset classes, use the Excel CORREL function to compute the correlation coefficient for the asset pair.
Formatting requirements
- The column headings and row labels must contain the asset class names formatted in uppercase, with underscores used to represent spaces.
- The names of asset classes must match, verbatim, those defined in the accompanying investment averages file.
- Numbers should be input in decimal format to a maximum of 4 decimal places.
- CASH is a required asset class with all others being client defined.
- The Investment Averages file should be sent to Voyant in a comma-separated value (.csv) format.
The following example shows how a correlation coefficient file should be formatted. Please note that the values shown are test data, used only for example.