Having a robust tool to analyse profit and loss (P&L) is crucial for effective decision-making. Quantifi’s P&L Explain feature stands out for its ability to provide granular insights into market data changes and their impact on P&L, making it a favourite among our clients. We spoke with Nate Cross, a Senior Consultant on Quantifi’s North American Professional Services team, to understand why clients find P&L Explain invaluable.
Unmatched granularity in analysis
One of the primary reasons clients appreciate P&L Explain is its granular level of detail. “Clients can dissect changes in P&L down to individual market data components,” explains Nate. This feature allows users to pinpoint the exact factors—such as shifts in interest rates or changes in credit spreads—that affect their financial positions. For instance, a bond trader can use the tool to isolate P&L impacts from interest rate movements and uncover the underlying contributors influencing their positions. Users can isolate, very precisely, the investments that they are managing on behalf of their clients and exactly pinpoint the reasons for their performance, which in turn allows a much greater depth of decision-making in their trading and hedging risks.
Difficult to operate without it
Operating without a P&L Explain tool can pose significant challenges, particularly when trying to achieve the level of detail necessary for precise financial analysis. “It gives you a much more accurate look into how and why your P&L has changed over time, that you just wouldn’t get elsewhere,” comments Nate. Alternative methods often fall short, especially when dealing with complex financial products. Quantifi provides two ways of calculating P&L Explain – one based on Greeks and another based on full revaluation. The full revaluation method helps isolate the impact of each individual risk factor on the P&L, while the sensitivity-based method gives an idea of how well the theoretical hedges would performing. This is especially important for complex instruments such as a tranches and options, where the intricacies of each product and cross-effects can significantly affect financial outcomes.
A fan favourite among clients
P&L Explain is especially popular with Quantifi users, as highlighted by Nate’s interactions with various clients. “It’s a fan favourite, and not having it can be a significant drawback,” he notes. The tool’s ability to provide a detailed breakdown of financial results, tailored to different trading strategies, makes it an essential resource for sophisticated financial analysis. This customisation allows firms to get precise insights based on their unique portfolios, whether they are dealing with bonds, stocks, or more complex financial instruments.
A sophisticated tool for sophisticated strategies
Quantifi’s P&L Explain is not just a one-size-fits-all solution; it is a sophisticated tool designed to cater to the diverse needs of clients with varying strategies and product types. As Nate points out, “Each client could get something different out of it, clients use it differently depending on the types of products they trade… the benefit is it can be catered towards any type of complex strategy,” This flexibility is particularly evident in areas such as credit derivatives, a specialty of Quantifi’s platform.
The tool provides a detailed analysis of complex financial products, including everything from credit index basis adjustments, spread changes and recovery changes in the event of defaults. This level of detail is crucial for firms that engage in complex credit strategies. By offering a nuanced understanding of how various factors impact financial outcomes, portfolio managers can make informed decisions, hedge effectively, and optimise their strategies.
Ease of use & implementation
Despite its complexity, P&L Explain is user-friendly. Nate describes that setting up and using the tool is straightforward, “it auto-implements, you have a couple of different configurations on how you use historical risk runs, the date you use and which products to calculate and then the calculator will auto-generate the names. Then you just start running risk, and it picks up the new measures and then you just add them to whatever reports you want.” He emphasises that while the underlying calculations can be complex, the end-user experience is streamlined, allowing clients to quickly start using the tool for detailed P&L analysis.
Comprehensive P&L buckets
Quantifi’s P&L Explain categorises data into three main buckets: general P&L risk, realised and unrealised P&L. This categorisation helps clients understand not just where their P&L currently stands, but also the underlying factors contributing to those positions. Nate points out that this feature is particularly beneficial from an accounting standpoint, as it can bridge the gap between traders and accountants and offer a clear view of both realised and unrealised P&L.
Enhance returns and reduce volatility: The power of Quantifi’s P&L Explain
Quantifi’s P&L Explain feature offers unparalleled depth and precision in P&L analysis, making it a critical tool for firms looking to optimise their strategies. The tool’s ability to provide detailed, product-specific insights is a significant advantage for clients looking to navigate the intricacies of complex instruments. Access to this continuous feedback and learning means that users can improve their strategies, lower volatility and enhance their returns.
In this short video, Head of Solutions, Avadhut Naik provides an overview of Quantifi’s P&L and P&L Explain functionality.