Evaluating Portfolio Performance

1 / 4

# 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):

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

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

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
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):
• (rp - rf ) / p
• Risk premium per unit of total risk
• Appropriate for evaluating entire investment portfolio
• Evaluates manager’s ability to diversify unsystematic risk
Risk adjusted performance measures: The Big 3
• 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
Risk adjusted performance measures: The Big 3
• 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