Performance Measurement

Performance numbers are easy to quote and easy to abuse. A Sharpe ratio means little without its measurement window; an alpha means nothing without its benchmark. This guide collects the Knowledge Hub's performance-measurement entries: the ratios and statistics institutional allocators actually use, each with its formula, a worked example, and - importantly - the conditions under which it misleads.

All entries in this guide

• Alpha - Alpha is the portion of investment returns that cannot be explained by exposure to market beta or other…
• Beta - Beta measures how much an asset's returns move with the returns of a chosen market benchmark.
• Calmar Ratio - Annualised return divided by maximum drawdown, conventionally over 36 months.
• Fee Drag - The cumulative cost of fees measured as lost terminal wealth rather than as an annual percentage.
• Information Ratio - The Information Ratio measures the consistency of excess returns relative to a benchmark.
• Sortino Ratio - The Sortino ratio is a risk-adjusted return measure that penalises only downside volatility, treating upside…
• Time-Weighted vs Money-Weighted Return - Time-weighted return strips out the effect of contributions and withdrawals and measures the manager…
• Total Return vs Price Return - Price return counts capital appreciation only; total return adds income and assumes it is reinvested.
• Volatility Drag - The gap between the average of a return series and the return actually compounded.
• WACC - Weighted Average Cost of Capital (WACC) is the blended cost of a company's debt and equity financing…
• XIRR - XIRR (Extended Internal Rate of Return) calculates the annualised return on investments with irregular cash…

More topic guides

• Options & Derivatives
• Volatility
• Macro & Multi-Asset
• Risk Management
• Hedge Funds & Alternative Strategies
• Portfolio Construction
• Fund Structure
• Fund Operations
• Asset Allocation

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