March Madness Portfolio Challenge: Round 1 Leaderboard

Well, things are off to an interesting start, eh?  Though there’s always a few headline-making upsets from round 1, this year’s March Madness tournament seems particularly maddening!  Notably:

• 11-seed Wichita State, after being tragically underseeded into a play-in game, whooped 6-seed Arizona.
• Two 12-seeds (Yale and Little Rock) prevailed, continuing the annual anomaly of 5-seed upsets.
• 13-seed Hawaii beat Cal.
• 14-seed Stephen F. Austin beat West Virginia.
• And perhaps most notably, 15-seed Middle Tennessee beat one of the tournament favorites, Michigan State. This is a historically significant win, as 15-seeds are now 8-116 since 1985.  Additional interesting datapoint: 97.8% of ESPN brackets selected Michigan State to prevail.  Oops!

Now, onto our leaderboard.  While we’ll be adding more data as the tournament continues, our current version includes a few interesting things to pay attention to.  In addition to the score, we report on the portfolio weight remaining and the HHI index.  Remaining portfolio weight is useful as a simple approximation of the amount of the portfolio which has yet to bust out.  However, it is flawed in that it doesn’t take into account which teams in any given portfolio are weighted, if/when those teams face each other, and how many games remain in the tournament.  As such, it only has basic heuristic value.

The HHI index is a measure of portfolio concentration.  We’ve included it because one of our hypotheses entering the Portfolio Challenge was that concentrated portfolios would find their way to the top and the bottom of our rankings.  Lo and behold, after just the first round, we see this pattern (though weakly) starting to emerge.  As the following chart shows, portfolios with an HHI of 10% largely occupy the ranks between 10-30, with more concentrated portfolios forming the ends of the “barbell.”

And finally, what you’ve all been waiting for: