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Presentation On: Portfolio Evaluation & Methods

The document discusses three methods for evaluating portfolio performance: Sharpe's Performance Index, Treynor's Performance Index, and Jensen's Performance Index. Sharpe's Index measures risk-adjusted returns by comparing a portfolio's average returns to its total risk. Treynor's Index evaluates a portfolio's performance relative to market performance and the characteristic line relationship. Jensen's Performance Index is an absolute measure that compares a portfolio's returns to a standard based on the manager's predicted ability.

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Suhil Khan
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44 views

Presentation On: Portfolio Evaluation & Methods

The document discusses three methods for evaluating portfolio performance: Sharpe's Performance Index, Treynor's Performance Index, and Jensen's Performance Index. Sharpe's Index measures risk-adjusted returns by comparing a portfolio's average returns to its total risk. Treynor's Index evaluates a portfolio's performance relative to market performance and the characteristic line relationship. Jensen's Performance Index is an absolute measure that compares a portfolio's returns to a standard based on the manager's predicted ability.

Uploaded by

Suhil Khan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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PRESENTATION ON

PORTFOLIO EVALUATION & METHODS

BY : VENKATESH.C.H MBA-99651

PORTFOLIO EVALUATION :
Portfolio manager evaluates his portfolio performance identifies the source of strength and weakness. The evaluation of the portfolio provides a feedback about the performance to evolve better management strategy. Even through evaluation of portfolio performance is considered to be the last stage of investment process, it is a continuous process. The managed portfolios are commonly know as mutual funds.

Sharpes Performance Index. Treynors Performance Index. Jensens Performance Index.

Sharpes performance index gives a single value to be used for the performance ranking of various funds or portfolios. Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. This risk premium is the difference between the portfolios average rate of return and the riskless rate of return. The standard deviation of the portfolio indicates the risk. The index assigns the highest values to assets that have best risk-adjusted average rate of return.

To understand the Treynor index, an investor should know the concept of characteristic line. The relationship between a given market return and the funds return is given by the characteristic line. The funds performance is measured in relation to the market performance. The ideal funds return rises at a faster rate than the general market performance when the market is moving upwards and its rate of return declines slowly than the market return, in the decline. The idea fund may place its fund in the treasury bills or short sell the stock during the decline and earn positive return. The relationship between the ideal funds rate of return and the markets rate of return.

JENSENS PERFORMANCE INDEX :


The absolute risk adjusted return measure was developed by Michael Jensen and commonly known as Jensens measure. It is mentioned as a measure of absolute performance because a definite standard is set and against that the performance is measured. The standard is based on the managers predictive ability. Successful prediction of security price would enable the manager to earn higher returns than the ordinary investor expects to earn in a given level of risk.

Thank u

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