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. A beta of 1.0…
• Information Ratio — The Information Ratio measures the consistency of excess returns relative to a benchmark. It is the active…
• Sortino Ratio — The Sortino ratio is a risk-adjusted return measure that penalises only downside volatility, treating upside…
• 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

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