{"id":20807,"date":"2020-02-27T12:32:33","date_gmt":"2020-02-27T12:32:33","guid":{"rendered":"https:\/\/traders-paradise.com\/magazine\/?p=20807"},"modified":"2021-10-12T11:53:04","modified_gmt":"2021-10-12T10:53:04","slug":"calculate-portfolio-performance","status":"publish","type":"post","link":"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/","title":{"rendered":"Calculate Portfolio Performance"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_74 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Dont_base_the_success_of_your_investment_portfolio_on_returns_alone_Use_these_three_sets_of_measurement_tools_to_calculate_portfolio_performance\" >Don&#8217;t base the success of your investment portfolio on returns alone. Use these three sets of measurement tools to calculate portfolio performance.<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Calculate_Portfolio_Performance_Using_Sharpe_Ratio\" >Calculate Portfolio Performance Using Sharpe Ratio<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#%E2%80%8BSharpe_ratio_PR%E2%88%92RFR_SD\" >\u200bSharpe ratio= (PR\u2212RFR) \/ SD<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Sharp_ratio_for_our_portfolio_20_%E2%80%93_3_15_113\" >Sharp ratio for our portfolio: (20 &#8211; 3) \/ 15 = 1.13<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Sharp_ratio_for_the_market_15_%E2%80%93_3_8_15\" >Sharp ratio for the market: (15 &#8211; 3) \/ 8 = 1.5<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Jensen_ratio\" >Jensen ratio<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Jensons_alpha_PR%E2%88%92CAPM\" >Jenson\u2019s alpha = PR\u2212CAPM<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Jensens_alpha_Portfolio_return_%E2%80%93_Risk-Free_Rate_Portfolio_Beta_x_Market_Return_%E2%80%93_Risk-Free_Rate\" >Jensen&#8217;s alpha = Portfolio return &#8211; ((Risk-Free Rate + Portfolio Beta x (Market Return &#8211; Risk-Free Rate))<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Treynor_ratio\" >Treynor ratio<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Treynor_ratio_PR%E2%88%92RFR_%CE%B2\" >Treynor ratio = (PR\u2212RFR) \/ \u03b2<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Treynor_ratio_for_a_equity_portfolio_9_%E2%80%93_3_15_0040\" >Treynor ratio for a equity portfolio = (9% &#8211; 3%) \/ 1.5 = 0.040\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Treynor_ratio_for_a_fixed-income_portfolio_7_%E2%80%93_3_125_0032\" >Treynor ratio for a fixed-income portfolio = (7% &#8211; 3%) \/ 1.25 = 0.032<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/calculate-portfolio-performance\/#Bottom_line\" >Bottom line<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h4><span class=\"ez-toc-section\" id=\"Dont_base_the_success_of_your_investment_portfolio_on_returns_alone_Use_these_three_sets_of_measurement_tools_to_calculate_portfolio_performance\"><\/span><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-20808\" src=\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2020\/02\/calculate-ratio-t-1.jpg\" alt=\"Calculate Portfolio Performance\" width=\"800\" height=\"533\" \/><br \/>\n<strong>Don&#8217;t base the success of your investment portfolio on returns alone. Use these three sets of measurement tools to calculate portfolio performance.<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">The main goal to calculate <\/span><a href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/the-60-40-portfolio-is-dead-how-to-replace-it\/\"><span style=\"font-weight: 400;\">portfolio<\/span><\/a><span style=\"font-weight: 400;\"> performance is to measure the value created by the investor&#8217;s <\/span><a href=\"https:\/\/traders-paradise.com\/\"><span style=\"font-weight: 400;\">risk management<\/span><\/a><span style=\"font-weight: 400;\">. The majority of investors will judge the success of their portfolios based on returns. But it isn&#8217;t enough. To have a sense of how our investment portfolio is well-diversified and how much risk we take we need to calculate portfolio performance. In other words, we need a measure of both risk and return in the portfolio to judge its success. Until the 1960s no one paid attention to the risks involved in obtaining returns. But today we have several ways to calculate portfolio performance and measure it.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Our aim is to present you with these valuable tools.\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/en.wikipedia.org\/wiki\/Sharpe_ratio\"><span style=\"font-weight: 400;\">Sharpe<\/span><\/a><span style=\"font-weight: 400;\">, Jensen and Treynor ratios pair risk and return performances, and unite them into unique value. Well, each of them operates a bit differently so we can choose one to calculate portfolio performance or mix all three ratios.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Calculate_Portfolio_Performance_Using_Sharpe_Ratio\"><\/span><b>Calculate Portfolio Performance Using Sharpe Ratio<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Sharpe ratio is the measure of risk-adjusted return of an investment portfolio. Or in other words, by calculating it we can find a measure of excess return over the risk-free rate relative to its standard deviation. It is common to use the 90-day Treasury bill rate as the representative for the risk-free rate. This ratio is named after William F Sharpe. He is a Nobel laureate and professor of finance, emeritus at Stanford University.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The formula is:<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"%E2%80%8BSharpe_ratio_PR%E2%88%92RFR_SD\"><\/span><b><i>\u200bSharpe ratio= (PR\u2212RFR) \/ SD<\/i><\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">\u200bIn this formula, PR represents the expected portfolio return, RFR is the risk-free rate, while SD represents a portfolio&#8217;s standard deviation which is a measure for risk. Standard deviation reveals the variation of returns from the average return. So we can say that if the standard deviation is great, the risk involved is also great.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, you can see how the Sharpe ratio is simple to calculate since it has only 3 variables.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But let&#8217;s calculate portfolio performance more realistic. For example, our portfolio has a 20% rate return. The whole market scored 15%. So, we may think that our portfolio is greater than the market, right? But it isn&#8217;t a proper opinion. How is that? Well, we didn&#8217;t calculate the risk we had to take to earn such a great rate return. What if we took much more risk than we thought. That would mean that our portfolio isn&#8217;t optimal. Let&#8217;s go further in this analysis. Imagine that our portfolio has a standard deviation of 15% and the overall market has 8%, and the risk-free rate is 3%. This is just a random example. Let&#8217;s calculate portfolio performance now using the Sharp ratio formula.<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Sharp_ratio_for_our_portfolio_20_%E2%80%93_3_15_113\"><\/span><b>Sharp ratio for our portfolio: (20 &#8211; 3) \/ 15 = 1.13<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">and<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Sharp_ratio_for_the_market_15_%E2%80%93_3_8_15\"><\/span><b>Sharp ratio for the market: (15 &#8211; 3) \/ 8 = 1.5<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">Can you see now?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While our portfolio scored more than the overall market, our Sharpe Ratio was notably less. So, our portfolio with a lower Sharpe Ratio was a less optimal portfolio even though the return was higher. This means we took an excess risk without extra bonus. But it isn&#8217;t the same case when it comes to the overall market, it is actually the opposite. When the market has a higher Sharpe ratio, it has a higher risk-adjusted return. The best portfolio is not the portfolio with the highest return. Rather, an excellent portfolio has a higher risk-adjusted return.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Sharpe ratio is more suitable for well-diversified portfolios because it more correctly considers the risks of the portfolio.\u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Jensen_ratio\"><\/span><b>Jensen ratio<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The Jensen ratio gauges how much of the portfolio&#8217;s rate of return is attributable to our capability to produce returns above average, and adjusted for market risk.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Jensen ratio measures the excess return that a portfolio produces over the expected return. This figure of return is also recognized as alpha. Let&#8217;s say that our portfolio has positive excess returns, so it has a positive alpha. On the other hand, a portfolio with a negative excess return has a negative alpha.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The formula is:<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Jensons_alpha_PR%E2%88%92CAPM\"><\/span><b>Jenson\u2019s alpha = PR\u2212CAPM<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">Here, PR stands for portfolio return and CAPM is risk-free rate+\u03b2( beta). We know that beta is the return of the market risk-free rate of return.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u200bBy using Jensen&#8217;s alpha formula we can calculate an investment&#8217;s risk-adjusted value. It is also known as Jensen&#8217;s Performance Index or ex-post alpha. Jensen&#8217;s <\/span><a href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/what-is-alpha-in-investing\/\"><span style=\"font-weight: 400;\">alpha<\/span><\/a><span style=\"font-weight: 400;\"> tries to determine the unusual return of a portfolio no matter what assets it consists of. This formula was first introduced by the economist Michael Jensen. Investors use this formula to calculate portfolio performance by enabling them to discover if an asset&#8217;s average return is adequate to its risks.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Regularly, the higher the risk, the greater the expected return. So, that&#8217;s why evaluating risk-adjusted performance is especially important for making investment decisions. It will allow doing this.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This Jensen&#8217;s alpha also can be expressed as\u00a0<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Jensens_alpha_Portfolio_return_%E2%80%93_Risk-Free_Rate_Portfolio_Beta_x_Market_Return_%E2%80%93_Risk-Free_Rate\"><\/span><b>Jensen&#8217;s alpha = Portfolio return &#8211; ((Risk-Free Rate + Portfolio Beta x (Market Return &#8211; Risk-Free Rate))<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">The alpha figure can be positive or negative. When it is higher positive values that suggest better performance in comparison to expectations while negative rates showed that the assets perform below expectations. <\/span><span style=\"font-weight: 400;\">Jensen\u2019s alpha is expressed in percentages.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let\u2019s take the example of a stock with a <\/span><a href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/roi-or-return-on-investment\/\"><span style=\"font-weight: 400;\">return<\/span><\/a><span style=\"font-weight: 400;\"> per day based on CAPM. And we see that it is 0.20% but the real stock return is 0.25%. So, Jensen\u2019s alpha is 0.05%. Is it a good indicator? Yes, you can be sure.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The purpose of this measure is to help investors to go for assets that grant maximum returns but with minimum risks.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, you found two stocks that are offering similar returns. But one with less risk would be more profitable for investors than the one with greater risk. When calculating Jensen\u2019s alpha you would like to see a positive alpha since that indicates an abnormal return.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Treynor_ratio\"><\/span><b>Treynor ratio<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The Treynor ratio is very useful to calculate portfolio performance. It is a measure that uses portfolio beta,\u00a0 a measure of systematic risk. That is different from the Sharpe Ratio that adjusts return with the standard deviation.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This ratio represents a quotient of return divided by risk. The Treynor Ratio is named after Jack Treynor, the economist, and developer of the Capital Asset Pricing Model.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The formula is expressed as:<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Treynor_ratio_PR%E2%88%92RFR_%CE%B2\"><\/span><b>Treynor ratio = (PR\u2212RFR) \/ \u03b2<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">The symbols are well-known, PR stands for portfolio return, RFR refers to the risk-free rate and \u03b2 is portfolio beta.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">We can see that this ratio takes into account both the return of the portfolio and the portfolio&#8217;s systematic risk. From a mathematical viewpoint, this formula expresses the quantity of excess return from the risk-free rate per unit of systematic risk. And just like the Sharpe ratio, it is a return\/risk ratio.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let&#8217;s assume we would like to compare two portfolios. One is the equity portfolio and the other is the fixed-income portfolio. How can we decide which is a better investment? Treynor Ratio will help us pick the better one.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To put this simply, assume for the purpose of this article only, the equity portfolio has a total return of 9%, while the fixed-income portfolio has a return of 7%. Also, the proxy for the risk-free rate is 3%. Further, let&#8217;s suppose that the beta of the equity portfolio is 1.5, while the fixed-income portfolio has a beta of 1.25<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let&#8217;s calculate for each portfolio!<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Treynor_ratio_for_a_equity_portfolio_9_%E2%80%93_3_15_0040\"><\/span><b>Treynor ratio for a equity portfolio = (9% &#8211; 3%) \/ 1.5 = 0.040\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h4><span class=\"ez-toc-section\" id=\"Treynor_ratio_for_a_fixed-income_portfolio_7_%E2%80%93_3_125_0032\"><\/span><b>Treynor ratio for a fixed-income portfolio = (7% &#8211; 3%) \/ 1.25 = 0.032<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">So, the Treynor ratio of the equity portfolio is higher which means a more favorable risk\/return option. Since the Treynor ratio is based on past performance it is possible not to be repeated in the future. But you will not rely on just one ratio when making an investment decision. You have to use other <\/span><a href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/pe-ratio-quick-method-to-value-a-stock\/\"><span style=\"font-weight: 400;\">metrics<\/span><\/a><span style=\"font-weight: 400;\"> too.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For the Treynor ratio, it is important to know that the negative value of beta will not give exact figures. Also, while comparing two portfolios this ratio will not show the importance of the difference of the values. For instance, if the Treynor ratio of one portfolio is 0.4 and for the other 0.2, the first isn&#8217;t surely double better.<\/span><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Bottom_line\"><\/span><b>Bottom line<\/b><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><span style=\"font-weight: 400;\">To calculate portfolio performance we have to determine how our portfolio has performed relative to some benchmark. Performance calculation and evaluation methods fall into two categories, conventional and risk-adjusted. The most popular conventional methods combine benchmark and style comparison. The risk-adjusted methods are focused on returns. They count the differences in risk levels between our portfolio and the benchmark portfolio. The main methods are the Sharpe ratio, Treynor ratio, Jensen\u2019s alpha. But there are many other methods too.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But one is sure, portfolio <a href=\"https:\/\/traders-paradise.com\/magazine\/recommends\/wallstreetwindow\/\">performance<\/a> calculations are a key part of the investment decision. Keep in mind, portfolio returns are just a part of the whole process. If we never evaluate the risk-adjusted returns, we will never have the whole picture. That could lead to wrong <\/span><a href=\"https:\/\/traders-paradise.com\/magazine\/2020\/02\/markets-are-down-should-we-invest-further\/\"><span style=\"font-weight: 400;\">decisions<\/span><\/a><span style=\"font-weight: 400;\"> and losses, literally.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Don&#8217;t base the success of your investment portfolio on returns alone. Use these three sets of measurement tools to calculate portfolio performance. The main goal to calculate portfolio performance is to measure the value created by the investor&#8217;s risk management. The majority of investors will judge the success of their portfolios based on returns. But [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":20809,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[1016,1012],"tags":[1663,113,281,1668,1661,1662,128,1660,1665,273,1664,1667,151,1666,1214],"class_list":["post-20807","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-how-to-master-in-trading-advanced","category-traders-secrets","tag-calculation","tag-investing","tag-investment","tag-jensens-alpha","tag-method","tag-performance","tag-portfolio","tag-portfolio-measurement","tag-returns","tag-risk-management","tag-risk-adjusted","tag-sharpe-ratio","tag-stocks","tag-treynor-ratio","tag-value"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Calculate Portfolio Performance - Traders-Paradise<\/title>\n<meta name=\"description\" content=\"o calculate portfolio performance we have to determine how our portfolio has performed relative to some benchmark. Performance calculation and evaluation methods fall into two categories, conventional and risk-adjusted. The most popular conventional methods combine benchmark and style comparison. The risk-adjusted methods are focused on returns. They count the differences in risk levels between our portfolio and the benchmark portfolio. The main methods are the Sharpe ratio, Treynor ratio, Jensen\u2019s alpha. 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The main methods are the Sharpe ratio, Treynor ratio, Jensen\u2019s alpha. 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