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Performance attribution, or investment performance attribution is a set of techniques that performance analysts use to explain why a portfolio's performance differed from the benchmark. This difference between the portfolio return and the benchmark return is known as the active return .
The ex-post Sharpe ratio uses the same equation as the one above but with realized returns of the asset and benchmark rather than expected returns; see the second example below. The information ratio is a generalization of the Sharpe ratio that uses as benchmark some other, typically risky index rather than using risk-free returns.
Even if a PME can be calculated, while the investment stays negative, every increase in the index will be interpreted as a hit in the performance of the theoretical investment : on the above example, the value of the index went back up to 120, which had a negative impact on the value of the theoretical investment.
The information ratio is similar to the Sharpe ratio, the main difference being that the Sharpe ratio uses a risk-free return as benchmark (such as a U.S. Treasury security) whereas the information ratio uses a risky index as benchmark (such as the S&P500). The Sharpe ratio is useful for an attribution of the absolute returns of a portfolio ...
To begin, define to be: = () where is the vector of active weights for each asset relative to the benchmark index and is the covariance matrix for the assets in the index. While creating an index fund could involve holding all N {\displaystyle N} investable assets in the index, it is sometimes better practice to only invest in a subset K ...
Although absolute return funds are sometimes considered not to have a benchmark, there is a common one: the funds should do better than short-dated government bonds (e.g. T-bills in the United States). For example, if such "cash" instruments yield 15%, and the fund returns 5% in that same time period, the fund would be under performing the ...
The investment performance is measured over a specific period of time and in a specific currency. Investors often distinguish different types of return. One is the distinction between the total return and the price return , where the former takes into account income ( interest and dividends ), whereas the latter only takes into account capital ...
Benchmark-driven investment strategy is an investment strategy where the target return is usually linked to an index or combination of indices of the sector or any other like S&P 500. [1] With the Benchmarks approach the investor chooses an index of the market (benchmark). The goal of the fund manager is to try to beat the index performance-wise.