Difficulties in adjusting average returns for risk present a host of issues, as the proper measure of risk may not be obvious, and risk levels may change along with portfolio composition. The following data is given for a particular sample period: Portfolio P Market M Average return 35 % 28 % Beta 1.2 1.0 Standard deviation 42 % 30 % Calculate the following performance measures for portfolio P and the market: Sharpe, Jensen (alpha) and Treynor. The Treasury bill rate during the period was 6 %. By which measures did portfolio P outperform the market? What do these measures mean or imply? Explain.
Difficulties in adjusting average returns for risk present a host of issues, as the proper measure of risk may not be obvious, and risk levels may change along with portfolio composition.
- The following data is given for a particular sample period:
Portfolio P Market M
Average return 35 % 28 %
Beta 1.2 1.0
Standard deviation 42 % 30 %
Calculate the following performance measures for portfolio P and the market: Sharpe, Jensen (alpha) and Treynor. The Treasury bill rate during the period was 6 %. By which measures did portfolio P outperform the market? What do these measures mean or imply? Explain.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
