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# Evaluating Portfolio Performance - PowerPoint PPT Presentation

Evaluating Portfolio Performance. Two key points: Evaluation must account for risk Total return of assets under management matters Measuring return: Dollar weighted return = IRR Time weighted return = arithmetic average. Risk adjusted performance measures: The Big 3. Sharpe measure (S):

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## PowerPoint Slideshow about 'Evaluating Portfolio Performance' - candice

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Presentation Transcript

• Two key points:

• Evaluation must account for risk

• Total return of assets under management matters

• Measuring return:

• Dollar weighted return = IRR

• Time weighted return = arithmetic average

• Sharpe measure (S):

• (rp - rf ) / p

• Risk premium per unit of total risk

• Appropriate for evaluating entire investment portfolio

• Evaluates manager’s ability to diversify unsystematic risk

• Treynor (T)

• (rp - rf ) / bp

• Risk premium per unit of systematic risk

• Appropriate for evaluating subsets of securities within a portfolio

• Assumes subset is part of a well diversified portfolio

• Jensen’s Alpha (a)

• ap = rp - [rf + bp(rm - rf )]

• Absolute CAPM risk adjusted performance

• Appropriate for evaluating an actively managed portfolio

• Can be converted into Appraisal Ratio:

• ap / sep