Financial Analysis. Lesson 29. Investment Performance Evaluation and Attribution Analysis
Financial Analysis. Lesson 29. Investment Performance Evaluation and Attribution Analysis
Performance evaluation assesses an investment’s return relative to a benchmark.
Absolute return measures total returns regardless of a benchmark comparison.
Relative return compares investment returns against a chosen benchmark index.
Attribution analysis identifies sources of portfolio returns versus benchmarks.
Benchmarking uses indexes to measure fund performance against market standards.
Excess return is the return above a benchmark's performance.
Active return is generated by active management, beyond the benchmark return.
Passive return replicates market indexes without additional active strategies.
Tracking error quantifies performance deviation from the benchmark.
Information ratio assesses returns per unit of tracking error in a portfolio.
Sharpe ratio evaluates excess return over risk-free rate per risk unit.
Jensen’s alpha measures outperformance relative to risk-adjusted benchmark expectations.
Sortino ratio refines Sharpe ratio by focusing on downside risk.
Treynor ratio evaluates returns based on systematic risk exposure.
Risk-adjusted return combines returns with risk measures for investment assessment.
Portfolio turnover indicates frequency of asset trades within a portfolio.
Consistency analysis evaluates steadiness of returns over specific time frames.
Time-weighted return (TWR) separates returns from external cash flows.
Dollar-weighted return (DWR) considers cash inflows and outflows for return calculation.
Performance attribution identifies contributions of asset allocation and security selection.
Asset allocation effect measures impact of asset choices on portfolio returns.
Selection effect examines how individual security choices impact overall performance.
Interaction effect considers combined impact of allocation and selection decisions.
Alpha generation indicates performance above the expected market return.
Peer comparison benchmarks performance against similar investment funds or strategies.
Risk contribution analysis measures each asset's risk impact on portfolio.
Downside capture ratio measures portfolio performance during market downturns.
Upside capture ratio measures portfolio performance during market upswings.
Consistency score evaluates consistency of returns against target benchmarks.
Horizon analysis assesses performance over different investment holding periods.
Technical Examples:
Attribution analysis identifies specific factors contributing to portfolio outperformance.
Jensen’s alpha quantifies portfolio performance relative to a risk-adjusted benchmark.
Sortino ratio focuses on downside risk for more accurate performance assessment.